THEY say a week is a long time in politics. It is a maxim that can now easily be applied to the housing market.

Speaking to The Herald last week, Innes Smith, chief executive of Scottish housebuilder Springfield Properties, appeared relatively relaxed when asked if he was concerned that the cost-of-living crisis and rising interest rates could affect sales.

Mr Smith said the market had “softened” since the huge spike in demand that followed the easing of Covid restrictions but indicated that underlying demand remained strong.

“There are not enough houses getting built in Scotland,” Mr Smith said, when asked about the general outlook for the market. “We keep saying it. We don’t build enough houses in Scotland.”

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Mr Smith’s comments were partly framed in the context of the dissatisfaction he said many builders feel towards the planning system. According to Mr Smith, the sluggish nature of the process means new homes are not being built at a rate fast enough to bridge the current shortage in the market.

While Mr Smith was expressing confidence from a Springfield standpoint, a lot has happened in the few days since.

He was speaking on Tuesday September 20, two days before it was announced that the Bank of England’s Monetary Policy Committee had voted to increase the base rate by half a percentage point to 2.25%.

A rise of that order had been anticipated, given the direction of travel the Bank had been on since the start of the year. The Bank had already raised the base rate several times in 2022 to try to curb sky-high inflation, caused to a large extent by surging energy prices following Russia’s assault on Ukraine. The base rate had been at a historic low of 0.1% at the start of December, having been at that level since Covid struck in March 2020.

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What had not been expected, however, was the contents of new Chancellor of the Exchequer Kwasi Kwarteng’s fiscal event on Friday. The Chancellor’s package of sweeping tax cuts, designed specifically to benefit the wealthier in society and to be funded by extensive government borrowing, caused sterling to collapse to a record low against the dollar. And still the pound toils.

So extreme has been the market reaction to Mr Kwarteng’s tax splurge that the Bank of England was moved on Monday to make an emergency statement, in which it declared the “MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

The Bank then launched a programme of buying long-dated UK Government bonds yesterday in a “temporary and targeted way” to try to “restore orderly market conditions”.

The Old Lady of Threadneedle Street has not been the only institution to react to the upheaval. On Monday, Halifax, Virgin Money and Skipton Building Society temporarily withdrew mortgage deals for new customers, as the level of volatility made it difficult for lenders to price their products.

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And on Tuesday evening the International Monetary Fund stated it was “closely monitoring” events in the UK. It warned that measures tabled by Mr Kwarteng, which include scrapping the 45p top rate of income tax, and reversing April’s national insurance rise and scrapping the planned hike in corporation tax, are likely to increase inequality and fuel inflation.

Amid the unfolding turmoil, expectations for interest rates have swiftly adjusted. The Resolution Foundation think-tank noted financial markets were now expecting UK base rates to rise to 6% next year, up from the 5% they had been forecasting as recently as last Thursday.

And, speaking exclusively to The Herald on Monday, economist Jeremy Peat declared: “Higher interest rates are inevitable. Alongside higher inflation these will put a brake on growth – in opposition to any ‘non-Budget’ positive effect.”

The language now being used to describe the UK economy is more commonly associated with failed states, not a member of the G7 group of advanced nations. And it is especially frustrating given that so much of the woe is self-inflicted, driven by a seeming ideology of “trickle-down economics” pursued by Prime Minister Liz Truss and Mr Kwarteng that lacks any credibility.

For long-suffering households and business owners, this is clearly not the time for fantasy economics. Since the onset of Covid, people and businesses have faced continual worry over finances. Recent, if belated, measures to cap rises in energy bills will have provided some comfort, even if energy costs for typical households will still be around double the prevailing £1,277 price cap of last winter. But it looks as though that good work has been undone.

For mortgage holders who do not have fixed-rate agreements, and for the hundreds of thousands of people whose deals are soon up for renewal, the expected rise in interest rates sparked by the mini-Budget will put a further squeeze on finances at a time when they, and everyone else, can least afford it. It will also make it more expensive for businesses to borrow, perhaps denying them the opportunity to expand or maybe even simply stay afloat.

Until recent events, the major UK banks have been sanguine about people and businesses defaulting on mortgages and loans. But we are in a whole new ball game now. Higher borrowing costs and a renewed surge in inflation caused by sterling’s weakness will put even greater pressure on households and firms following two and a half years blighted by Covid, creating a real risk that people will default on mortgage payments. More people are now likely to fall into poverty or rack up unsecured debt.

As for the housing market, it might be argued that increasing mortgage rates may not be such a bad thing. The rate at which house prices have been growing in recent years, particularly since Covid, appears to have been unsustainable. Recently, evidence emerged that the annual growth rate was slowing. The Nationwide house price index pointed to a “modest slowdown” to 10% year-on-year growth in September from 11% in August, but it was still the fifth month in a row that growth had been in double digits in percentage terms. Further, house prices remain around 13% higher than before the pandemic took hold.

Against this market backdrop, it has become increasingly difficult for certain groups to get on the housing ladder, especially young people. But while the housing market may now begin to cool in terms of prices, higher borrowing costs and inflation are not going to make it any easier for people to buy their own homes.