willingness to borrow further and spend. The other consequence
of unsustainable debt service is mortgage arrears leading to repossession. It has been cheerfully assumed that there could
not be a repetition of the early 1990s, when 300,000 people lost their homes in the space of five years. We are, however,
unfortunately now heading in that direction, if not beyond it. Annual repossession rates are estimated at 45,000 in 2008,
up from 27,000 in 2007, but were expected to rise further in 2009. A variety of mortgage support schemes and forbearance arrangements
are currently holding back a surge of repossessions, but if unemployment continues to rise and there is a return to more normal
levels of interest rates, the dam will burst.
The growth of second-charge mortgages on personal loans and the securitization of mortgages have meant that there has been
a weakening in banking based upon personal relationships with bank managers; a default in payments now often automaticallytriggers a court reference, the first step on the road to repossession. For most, repossession means the loss of a home, and
creates more pressure on the dwindling stock of social housing. There the new homeless are competing with the 80,000 already
in temporary accommodation and the 1.7 million homeless (in England alone) on council lists waiting for social housing, usually
because of overcrowding or unsatisfactory conditions in the private rented sector.
When housing bubbles have burst before, prices have fallen, restoring affordability and a new balance. This time things are
not so straightforward. The bursting of the housing bubble coincides with, and is partially attributable to, the credit crunch:
the unwillingness of banks to lend. Because the market in mortgage securities has collapsed, banks are no longer able to raise
money, other than through new deposits, so their ability to make new loans has been sharply, brutally cut. As banks have adjusted
– not before time – to more realistic levels of risk, they are demanding bigger deposits, of as much as 25 per cent of the
value of a home, and often will not lend at all. First-time buyers, at the time of writing, were having to raise 100 per cent
of their annual take-home pay in order to cover the up-front costs of buying a house. We have a perverse situation where prices
have been falling but affordability has also been declining. Not surprisingly, demand has evaporated, driving the market down
even further.
Thus what has happened is not a correction in the housing market, with a welcome fall in prices caused by increases in supply
relative to demand. Instead, prices have fallen because of the cost of and non-availability of credit. And supply has also
fallen because of a collapse in the building industry. In the latter part of 2009 planning applications were running at a
lower level than at any time since 1948 and home constructions at the lowest level since the 1920s. There is now a great danger
that, if credit were once again to become easily available, there would then be a (temporary) reinflation of the bubble, creating
the potential foranother crash. With endless repetition of ‘good news’ about rising house prices, that prospect is becoming all too real.
The problems of a deflating housing bubble did not end with householders in arrears or in negative equity. The bottom fell
out of the market for new housing. New housing developments, for sale or for buy-to-let, have been coming to completion for
which there are no buyers or tenants. Many buy-to-let landlords have fallen into arrears. And, behind them, developers have
been left with unsaleable stock. There has been a dramatic impact on the house-building industry, with a decline in the number
of houses built from 170,000 down to an estimated 100,000 in 2008, with the loss of 100,000 construction jobs, including specialist
craft and professional skills which will be difficult to
of unsustainable debt service is mortgage arrears leading to repossession. It has been cheerfully assumed that there could
not be a repetition of the early 1990s, when 300,000 people lost their homes in the space of five years. We are, however,
unfortunately now heading in that direction, if not beyond it. Annual repossession rates are estimated at 45,000 in 2008,
up from 27,000 in 2007, but were expected to rise further in 2009. A variety of mortgage support schemes and forbearance arrangements
are currently holding back a surge of repossessions, but if unemployment continues to rise and there is a return to more normal
levels of interest rates, the dam will burst.
The growth of second-charge mortgages on personal loans and the securitization of mortgages have meant that there has been
a weakening in banking based upon personal relationships with bank managers; a default in payments now often automaticallytriggers a court reference, the first step on the road to repossession. For most, repossession means the loss of a home, and
creates more pressure on the dwindling stock of social housing. There the new homeless are competing with the 80,000 already
in temporary accommodation and the 1.7 million homeless (in England alone) on council lists waiting for social housing, usually
because of overcrowding or unsatisfactory conditions in the private rented sector.
When housing bubbles have burst before, prices have fallen, restoring affordability and a new balance. This time things are
not so straightforward. The bursting of the housing bubble coincides with, and is partially attributable to, the credit crunch:
the unwillingness of banks to lend. Because the market in mortgage securities has collapsed, banks are no longer able to raise
money, other than through new deposits, so their ability to make new loans has been sharply, brutally cut. As banks have adjusted
– not before time – to more realistic levels of risk, they are demanding bigger deposits, of as much as 25 per cent of the
value of a home, and often will not lend at all. First-time buyers, at the time of writing, were having to raise 100 per cent
of their annual take-home pay in order to cover the up-front costs of buying a house. We have a perverse situation where prices
have been falling but affordability has also been declining. Not surprisingly, demand has evaporated, driving the market down
even further.
Thus what has happened is not a correction in the housing market, with a welcome fall in prices caused by increases in supply
relative to demand. Instead, prices have fallen because of the cost of and non-availability of credit. And supply has also
fallen because of a collapse in the building industry. In the latter part of 2009 planning applications were running at a
lower level than at any time since 1948 and home constructions at the lowest level since the 1920s. There is now a great danger
that, if credit were once again to become easily available, there would then be a (temporary) reinflation of the bubble, creating
the potential foranother crash. With endless repetition of ‘good news’ about rising house prices, that prospect is becoming all too real.
The problems of a deflating housing bubble did not end with householders in arrears or in negative equity. The bottom fell
out of the market for new housing. New housing developments, for sale or for buy-to-let, have been coming to completion for
which there are no buyers or tenants. Many buy-to-let landlords have fallen into arrears. And, behind them, developers have
been left with unsaleable stock. There has been a dramatic impact on the house-building industry, with a decline in the number
of houses built from 170,000 down to an estimated 100,000 in 2008, with the loss of 100,000 construction jobs, including specialist
craft and professional skills which will be difficult to
Similar Books
The Midnight Line
Lee Child
2020: Emergency Exit
Ever N Hayes
My Bittersweet Summer
Starla Huchton
Taneesha Never Disparaging
M. LaVora Perry
A Bride at Last
Carolyne Aarsen
Return to Kadenburg
T. E. Ridener
Dollenganger 03 If There Be a Thorns
V. C. Andrews
Hunting Kat
P.J. Schnyder
Fatal Ransom
Carolyn Keene
Volle
Kyell Gold, Sara Palmer