Not very interesting rates

If money be not they servant, it will be thy master. The covetous man cannot be said to possess wealth, as that may be said to possess him.

Oh dear. The CPA have looked at the figures and reckon that the construction industry is going to see the biggest fall for 30 years this year, with housing starts their lowest point ever – or since 1924 which for most of us comes to the same thing.

And despite government pleas to the banks, both the former head of HBoS, and the current head of Barclays said before Christmas that this year, mortgages are going to be even harder to come by, making the housing market even more precarious.

So it really doesn’t seem to matter that the interest rates are practically zero because if the bank won’t lend you the money, you can’t pay it back, no matter what the interest rate.

The figures coming out of high street this last week have told us loud and clear what everyone expect our darling Chancellor knew: Taking 2.5% off VAT for 13 months will not stop the recession, it didn’t do anything to help the retailers and it’s not going to do anything to help the beleaguered housing and construction markets.

The only people who seemed to do OK over Christmas were the supermarkets, probably because we all felt so miserable that we might as well try and eat and drink our way out of it. Admittedly John Lewis seemed to do OK, but I rather suspect that was down to Waitrose and the rather special place that the chain occupies in middle class hearts.

The RICS said they believed that the interest rate cut would do no good at all and they’re probably right. However, what this latest cut shows is that the government (or the Bank of England but in this instance it’s much the same thing) has panicked. They’ve chosen a knee-jerk reaction, when a more considered focussed action would have been better in the long term.

Talking to Chris Pateman at the BMF about this, he pointed out that cutting the rate of VAT on home improvement products, for instance, would have had an immediate and beneficial effect on the real, tangible, bricks-and-mortar assets of UK plc.

“If ever home-owners needed a stimulus to invest in home improvements, that time is surely now. With rates as low as this, home owners ought to be able to borrow to fund extensions and enlargements. If they’ve already got savings there’s no point keeping them in a cash-ISA. And with markets still so uncertain, there’s little point switching into stocks and shares.”

He’s right. In the long term, home extensions and improvements will make people’s home nicer and better to live in, and doing it is even easier now that the planning requirements have been relaxed. Eventually, of course, such improvements will feed through to the bottom line in the form of higher house prices, though I wouldn’t hold my breath on that one.

Such rmi work is the bread and butter of most builders merchants and it’s been that which has kept many independents, if not happy, then at least not tearing their collective hair out. But of course, at the moment, the only people who can afford to do this sort of work are those with the money to do it without needing a loan.

It’s not being spent on the high street, it’s not being spent in the pub, nor on holidays since the pound’s worth so little at the moment (and there’s a whole other blog to come on what this government is doing to the value of sterling), and there’s no point in keeping it tucked in the building society.

So really, the message to householders ought to be – you might as well spend your money at the builders merchant. Please.

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