The current financial system’s reliance on debt and asset inflation risks economic and housing stability, worsened by climate impacts. To address this, finance must be reimagined to support the real economy through mortgage reform, separating banking functions, focusing on productivity-driven growth, enhancing social safety nets, and reorienting central banking policies toward sustainability.
The UK’s housing market faces significant risks from climate change, particularly flooding, which could lead to a permanent devaluation of properties. With full-recourse mortgages, homeowners remain liable for debts despite reduced asset values, triggering potential economic contraction. This crisis could exacerbate intergenerational and regional inequalities, impacting middle- and working-class families most severely.
The UK’s financialization creates a cycle where rising household debt underpins economic growth, yet undermines financial security. With stagnant wages and rising asset prices, many households rely on debt for basic participation, exacerbating inequality and financial precarity. This self-reinforcing trap threatens economic stability, necessitating urgent policy intervention.
Post-2008, low interest rates and debt-driven growth have led to asset inflation without real value creation. Policymakers have avoided necessary changes, risking future financial instability by prolonging an unsustainable debt economy.
Finance-led growth is fragile and is dependent on increasing debt to sustain economic activity. Mortgages underpin the system, but as households face flooding risks and economic pressures, the reliance on future borrowing can lead to inevitable crashes, as history has shown, underscoring a fundamentally unsustainable model.
The 2007-08 financial crisis was caused by aggressive lending and securitization practices that obscured risks, leading to widespread defaults and a global recession.
The implications of financialisation spread across the UK housing market and broader economy. The shift from productive activities to profit-driven financial practices has destabilized traditional banking, leading to increased dependence on consumer debt and profit extraction from wages, while contributing to stagnant productivity growth.
What happens when flooding risks affecting UK housing end up impacting the financial system’s reliance on mortgages as a savings vehicle? Banks have the unique ability to create money through issuing debt, fundamentally transforming loans into financial assets with multiple ownership claims. This profit-driven model enables extensive capital generation, significantly impacting households and the broader economy.
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