For those of you working in the personal debt sector, or who live in rented property, or have parents, or who are or may become parents yourself this article will have resonance. One of the first questions you ask, maybe in a meeting with a debtor, or when planning an answer to a Joint Board question, is about the legal arrangements underpinning where people live.
The private rented sector has enjoyed a rollercoaster ride over the past decades. After the second world war public funded council housing accounted for more than half of all private residences built. It is consistently estimated that Britain needs about 250,000 new homes a year. Housing Associations have long taken up the slack, as councils sit on the side of the road knackered from all the building, and more recently private companies have caught the mass housing bug, developing flats and big new estates which look remarkably like all other flats and big new estates. In any event we end up at around 70,000 houses short each year.
Initially it was thought that the private rented sector was a place people in their twenties and thirties occupied, whilst they saved up, got their acts together and bought a tiny garden attached to a smaller house. 'Starter homes' were viewed by parents as part of their escape route from parenting and a sliproad onto their dotage, but in the two decades following the turn of the millennium property prices grew by three hundred per cent and the 'own-your-home' sector has become a niche place for the privileged few.
All of the above means that, in 2019, a fifth of people aged between 35 and 64 lived in privately rented homes, double the number at the end of 2009, and that number is only moving north. One of the consequences of this is that the welfare state is creaking under pressures it was never designed to support. Most retirement-saving advice assumes that people own their own homes and, in addition to that, the 'finger-in-the-air' advice is that the average person needs a pension pot of around two thirds of their final salary to sustain their standard of living. However, this assumes a sharp fall in housing costs around and in retirement as the mortgage is paid off, and for many the response to the above is "oops", and "oops".
This means the majority of pensioners will need to supplement an already later-arriving pension with housing benefit to cover their rent. This creates a conundrum for Boris and his crew as, whilst Conservative voters tend to go blue, renters are mainly red. What to do?
Buying a first property has never been harder. It was thought that the pandemic might see to house prices, but all it has done is to raise them by an average seven per cent across the United Kingdom in the last year. The average house price across our beloved country was £249,000 in January 2021. Seven percent of that is £17,430. In your thirties, the average salary for both men and women in the UK sits at £36,983 per year, before tax. After tax, disposable income falls to about £3,200 per annum. At this rate it would take a couple (who identify as such) three years to save just for the increased portion of their average property. It is estimated that first-time buyers need to scrape together a pot of approximately 70 per cent of their income to put together a deposit on a tiny, average and often unavailable first property.
The sums do not work.
The Tories have an idea. This month they launched an initiative to boost the supply of mortgages with a loan-to-value rate above 90 per cent. Effectively, they underwrite them, as long as the homes are worth less than £600,000 (or 'a pergola', as it is known in Kensington). If the mortgage isn't paid and the property is foreclosed upon the Government (well, we) pay the top 10 per cent of the cost of the property.
However, the Government guarantees do not remove the regulatory restraints placed on lenders to prevent a repeat of the whole 'sub-prime' causes of the global meltdown in 2008 which was caused ... well, by exactly this kind of lending on homes people couldn't otherwise afford. Under the current regulations, banks are only allowed to allocate 15 per cent of mortgages worth more than 4.5 times the borrower's income.
Let's see; 4.5 times the average national wage of £36,983 is £166,423. The Government guarantee the top 10 per cent; £25,000. That adds up to £192,000. No-one can afford to buy the average house (which is increasing in value by an average seven per cent a year), even with Government assistance which the regulators will not allow in any event.
You can understand the problem.
Does this increase the north-south divide, as property is generally cheaper up north? What's more the Office for National Statistics have told us that 32 per cent of all males aged 20-34 are living with their parents, compared with 26 per cent in 1999, with most of the increase occurring since the financial crisis in 2007-08.
Discuss (20 marks).