ALEX BRUMMER: Don’t talk Britain into a housing crisis

The gloomsters are back in style.

Worried that rising energy prices and inflation will condemn everyone to shopping at food banks, they now predict that higher interest rates, as consumers forgo fixed-rate mortgage agreements, will soon pile the keys on brokers’ desks. The dream of home ownership destroyed.

Yes, interest rates continue to rise. Last night’s three-quarters-point rise in America’s key federal funds rate to a range of 3.75 percent to 4 percent means U.S. borrowing costs have now risen 3.75 percentage points since Fed Chair Jerome Powell, a Trump nomination by President Biden , joined the fight designed to avoid embedding double-digit inflation.

Assuming the Fed’s boldness will drive the Bank of England to give up its embarrassment, it will travel the same distance today, from 2.25 percent to 3 percent.

The trend towards higher rates seems to be fixed.

But how concerned should people with mortgages be? If they believed it was possible for nearly free money to continue after the financial crisis and Covid-19 interest rates, they were living in cloud cuckoo country. It’s worth remembering that after the financial crisis, lenders had to change their approach to home loans.

Rather than basing mortgages on multiples of gross income, a series of credit checks were imposed, including after-tax spending patterns on everything from gym memberships to foreign vacations.

In the immediate aftermath of Trussonnomics, there was a moment of great stress as long-term gold yields — the basis of which many fixed-income mortgages are priced — and fixed-income deals rose above 6 percent.

But that should be an anomaly. Lenders panicked by raising mortgage rates to dazzling levels. It’s an old-fashioned view, but interest rates may soon peak. The Bank of Canada, which is up early, is calling for a spike. The Federal Reserve’s worst rate hikes are behind it.

In the UK, efforts to close the alleged black hole in the budget, ranging from £35bn to £60bn, have already led to a decline in gold yields.

The yield gap with German bunds – the benchmark in Europe – has closed.

When the Bank of England started its quantitative tightening by selling gold this week, it sparked a frenzied rush with over £2bn in bids submitted.

That knocks on the head the idea that the UK relies on the kindness of strangers.

The UK debt-to-GDP ratio is lower than many of our competitors and fears of unfunded tax cuts have subsided.

The question now is how high will the rates go? Expectations are falling and the margin of 5-6 percent for official rates is off the table.

Owning a home will become more expensive if people are among the 1.8 million borrowers who will get out of their problems over the next year when rates peak.

That means there are as many as 7 million borrowers who can afford the highest rates.

Gone are the days of cheap home loans and the house price bubble may burst (not a bad thing for first-time buyers). It is premature to talk ourselves into a housing crisis in addition to the cost of living.

Lone Stars

When my son Justin and his wife Ruvani de Silva (an award-winning spirits writer), who live in Austin, came to vacation with us in Europe in August, they brought a bottle of Lineage, a Texas single malt.

I was skeptical but upon tasting I found it excellent.

So when I discussed Diageo’s most recent financial results with CEO Ivan Menezes, I mentioned my Texas single malt but couldn’t remember the name.

He immediately responded with the name of the craft whiskey maker Balcones, based in Waco and founded in 2008.

The second shoe has now fallen. Diageo has expanded its portfolio of American craft liqueurs and has acquired Balcones Distilling (for an undisclosed price), explaining how impressed with the innovation and pioneering spirit of its flagship brands, Lineage American Single Malt and Baby Blue Corn Whisky.

Scotland has the purest mineral water, but Texas has the intense heat that enhances the flavors.

Jee-haw.