I read with interest today an article by Channel 4’s Economic Editor, Faisal Islam. It’s entitled How The Property Dream Turned Into A Nightmare.
I’ll link to the article at the end but the gist is this:
Since the 1990’s banks and building societies have made it too easy to borrow money and have wrecked the property market . Lower interest rates fuelled by lender price wars; low or even zero deposits; and self-certification mortgages have conspired to fuel boom, bust and consequential misery. Despite the downturn in the property market over recent years, prices are still prohibitively high and are out of reach of first time buyers. It’s simply not fair.
Buy-to-let investors come under fire too for adding accelerant to the flames due to their uber capitalistic obsession with yield, return and profit.
Mr Islam explains that the mortgage is the most toxic financial instrument ever created and indeed can be translated to ‘death contract’ in it’s the true meaning of the terminology.
Tear jerking anecdotes are extolled which outline the example of a single mother who shipped her children off to their grandparents so that she could work longer hours in order to pay her increasing home loan repayment.
No I’m no economist but I do take exception to such a one sided, almost communistic view of the ‘perils of home ownership’.
Let us start with the question of demand. The article talks of overheated property prices that lock the UK public out of home ownership. And repossessions that are made to take the form of ‘the norm’.
The reality is that prices are what they are due to demand. The market itself dictates in which prices move and at what speed. If there was no upward pressure from buyer to buy, then house costs would not increase at all. In other words, prices rise because demand is sufficient to make that happen. By definition, prices are therefore affordable to enough people to allow them to purchase at all.
Repossessions are often heralded as the spectre of owning bricks and mortar. Those that gave up their homes in 2013 so far represent just 0.07% of borrowers, or 1 in 1400 mortgaged properties (source: Council of Mortgage Lenders). Always too high, of course, but not the epidemic that the references to these individual cases of plight would have you perceive.
To lambast those that buy property to rent out as pariahs of our economic community is a contradiction. If you accept the argument that home ownership is not all that it’s cracked up to be and that we should look at the ‘French/Germans/Swedish/Norwegians’ for inspiration as lifetime renters, then where is the rental stock to come from to accommodate (literally) such a need if the UK were to turn its back on owning its very own castles, preferring to borrow a few rooms for the duration instead?
Moreover, when retirement dawns and income dries up, who will pay your rent?
Faisal Islam’s belief is that the banking sector is to blame for the housing boom. The state, too, for encouraging home ownership and for bailing out the Northern Rocks, RBS and Lloyds of our High Streets.
My wife’s native Slovakia operated an alternative approach to housing before it shrugged off communism. It was an approach which was state funded, gave no choice of property type or location and that resulted in a dearth of multiple, grey tower blocks spread across the land designated wherever a sole bureaucrat determined they should be. We all know how the whole communism thing worked out in the end.
But Faisal is missing something compelling here and which he rather avoids completely in his article…
The question of PERSONAL RESPONSIBILITY. What of individuals taking it on the chin for decisions they themselves have made? No one forces property buyers to sign on the dotted line, after all.
Casting such strong aspersions at the lending sector and contending that a cheap loan culture is responsible for home ownership misery (if indeed on balance such a situation even remotely exists) is like blaming your car’s manufacturer for your speeding ticket. It’s akin to suing McDonalds for making you fat.
Owning property is not without downside. But the upside is far greater. A house that feels like your home. Something for your loved ones to inherit. An appreciating asset that allows businesses to be born and to flourish. Not to mention the revenue that UK PLC derives in stamp duty and VAT, unpalatable as these are but if they did not exist Government would have to find the money from you somehow.
There is nothing safer than bricks and mortar, my grandfather Albert Quirk (an estate agent) used to tell me.
It’s as factual today as it was in 1975 when he last said it, despite the ups and downs since and that will inevitably always occur.
A non-market led, truly state sponsored housing system is an alternative that is far more frightening.
Here is the article in full, an extract from a book written by Faisal Islam.