By Kate Groucutt / @kategroucutt 
The fall in house prices over the last year has meant that many people, my partner and I included, can now realistically consider buying a home. However, the problem remains that whilst there are properties which we can in theory afford, it is still extremely difficult to get a mortgage. This lack of access to credit risks extending the economic downturn and undermining young people's faith in the Government's recovery plan.
We want to buy our own home not as an investment or a way of making money, but as somewhere to live. It would give us control over our own surroundings and a stake in the community in which we've lived for three years. It would also have tangible benefits like being able to improve the building's insulation to reduce our energy bills, something which our landlord currently has no incentive to do.
Last week we found a flat we liked in a newly completed development. Before putting down a holding deposit, we spoke to the bank to confirm that the mortgage we had previously discussed was still available. We have managed to save enough for a 10% deposit and there are now a range of mortgages available on this basis. But, no, we were told that for a new build flat we would require a 25% deposit. This is completely out of our reach, as I'm sure it is for most first time buyers. It is based on a perceived higher risk of negative equity for newly built flats, regardless of the location, price or any other features of the flat in question. Yet if we were buying a new build house (a rare thing in London) or a crumbling old property a street away, our 10% would have been fine. This extra barrier for people buying new build flats is surely hurting the companies developing these properties, and I'm sure will result in some flats going unsold when people are desperate to live in them.
To try and make up the difference, we approached the Government funded scheme Own Home which gives a contribution of 20-40% of the value of the home on an interest free basis for 5 years. It is aimed at first time buyers, yet we were told that we would need to wait 10 weeks just for an eligibility interview, hardly 'real help now'.
The market seems to have swung from excessive availability of credit to extreme caution, yet this has clear knock-on consequences for the wider economy beyond the building trade. We hope we will be able to buy a place eventually, but it will take much longer than we first thought as the goalposts keep shifting and we have had to rule out a whole category of properties. This means a delay to the business we'll give the van driver who we'll hire to help move us, the sofa and cooker we'll buy, the several thousands of pounds in stamp duty we'll pay the Treasury, plus the estate agents, solicitor and everyone else who'll make money through the sale.
Our main frustration is about the rigidity of the rules imposed by the banks and the lack of help available. As taxpayers who currently make very little claim on public services, we thought the least we could expect from our publicly backed banks would be fair policies and consistency. Of course they need to be careful with public money, but this should be based on an assessment of our creditworthiness and the value of the property we are looking to buy, rather than a blanket policy. Those of us who have saved and want to buy a property within our means are being punished compared to those who bought a few years ago with 100% (or more) mortgages.
So despite the fall in house prices, there is as big a divide as ever between the 59% of Londoners who are homeowners and the rest of us. The divide is yet bigger when you factor in mortgage rates. Many existing mortgage holders are benefiting from low interest rates, where as we will be facing interest rates of 6% even if we can get together the deposit required.
Negative equity and repossession are real risks for thousands of families and Government must do what it can to help, but first time buyers mustn't be forgotten. For young people looking to buy their first place, or families in need of more space, it is crucial that the market keeps moving. Government must get the banks lending again and expand schemes like Own Home and other forms of shared ownership.
Not only will this stimulate local economies and generate tax revenue, but it will convince first time buyers that Labour is the party which will help them achieve their aspiration of owning a home.
Delicious
Digg
Reddit
Facebook
StumbleUpon
I can really sympathise with your plight. I built a nice home with my wife and really enjoy this. Your best option is to rent. The banks recognise there is a premium for a new build and hence increased risk means a bigger deposit just in case of default.
Your point on the correction is interesting, I ask you this if a family has made a stupid commitment with no ability to pay, should the rest of us foot the bill? I believe that we should, but to a limit.
You are right about needing proper bank managers, however, the banks are scared and busy rebuilding balance sheets. This is why hey have gone from throw caution to the wind to uber cautious lending.
My last point here though is when you arise every morning I want you to repeat this Mantra:
I am a devoted follower of Labour, why is it that the Labour government failed Britain and me and the poor so badly.
If you believe in social justice, a vote for Labour is completely hypocratic. Browns debt fuelled Britain has ruined the working classes. Come election day vote for anybody but Labour - because more of this means it will be worse. HMS Brainless is floundering. Can I suggest you change from being a Labour activist to an activist for the working classes? New Labour only purports to be a party of the less privaledged.
If you want the detail on how Gordon screwed the working classes, I'm happy to post it.
Negative equity stops home moves
http://news.bbc.co.uk/1/hi/business/8003028.stm
"Negative equity... only surfaces as a problem if households need to move, or are also experiencing repayment difficulties "
See? It's a problem for the minority. The rest are just upset that they paid too much for their house and want everyone to help them to make them feel better.
Sure, rehouse people that can't pay their mortgage, maybe support them a bit if they are likely to get another job, but don't expect Mr and Mrs Prudent to shell out for them through taxes.
Where has the sense of personal responsibility gone?
I feel that the UK has the worst of two worlds now - Greed started by Thatcher coupled with state dependency espoused by Labour. It's a bit like Britain has collectively become a stroppy toddler/teenager again, rather than a responsible adult.
The schemes are badly administered by the RSL's who incidentally are sat on several thousand of these properties because they cant sell them, as they are overvalued and the RSL cannot drop the price as they would lose money.
Example a two bed flat valued at £275,000 where a couple buy 25% stake with a 10% deposit will cost approx £1200 pcm.
A two bed flat at £275,000 where 100% purchased with a 10% deposit will cost approx £1300 pcm.
Do the math!!!
We need more council/HA homes for rent not stupid schemes intended to prop up a falling market. While we're at it let's make sure these are family homes, we've more than enough 1 bed flats.
Housing overcrowding 'will soar'
http://news.bbc.co.uk/1/hi/uk/7999755.stm
Housing lists 'to set new record'
http://news.bbc.co.uk/1/hi/uk/7951556.stm
Illegal landlords sub-letting social housing
http://news.bbc.co.uk/1/hi/uk/7956258.stm
Third of men 'live with parents'
http://news.bbc.co.uk/1/hi/uk/7999579.stm
The real story here is that 30% of homes don't have proper heating.
This is NOT what most people would expect after 12 years of Labour government.
It seems the only government policy on housing is to support the sick fantasies of property owners and house builders that their property is worth what it was in 2007.
The rest of the social problems don't seem to matter. Do think about it. It's more important that housing in general is sorted out rather than worrying about people who bought at the wrong price and people who still want to pay too much, with taxpayer support! Jeez! Has the world gone mad?
Repossessions are a different issue but I understand there is far more help now compared to the last housing crash in the early '90s such as local Councils taking over a property and allowing the mortgage holder to become the tenant. I think that banks should also be encouraged to do the same. The problem often lies with other forms of credit such as second mortgages where the lender is more likely to seek possession in the case of default.
We all now understand that banks were too easy to lend in previous years. This must have lulled many people into thinking that just because someone would lend them the money that they didn't have to have a contingency. In '92 interest rates doubled over night and stayed around fifteen percent for long after.
Labour should be in favour of policies that make housing affordable in the long term. This means not supporting exclusively one form of tenure such as buying. Can I suggest having a look at the 2020 Group proposals on housing:-
http://england.shelter.org.uk/professional_resources/policy_library/policy_library_folder/2020_group_launch_document
Repossession and negative equity aren't the end of the world you know. When I was a child our house was repossessed. A bit later, the next house we lived in was in negative equity. Why did all of this happen? Partly, it was the mistakes my parents made, partly because of the 1980s housing bubble.
As others have pointed out, Gordon Brown said he wouldn't let prices get out of control - because of the effects of housing bubbles. Yet in the heady noughties, anything seemed possible as long as someone would lend you the cash. Gordon got a bit carried away and prudence was left standing at the altar.
Now the 2000 - 2007 housing bubble has brought more misery on people. Now of course, housing is horribly misallocated. Some people own several homes; some people live alone in huge houses; some have to share tiny accommodation with strangers; immigrant workers often have to live in slum like conditions to provide cheap labour. It's all gone a bit wrong really. Except some people think it's great that many live in terrible conditions - as long as their house price goes up.
The answer is to have a proper housing policy that provides enough housing for people and attempts to stop people speculating on residential property. If people want to speculate on property, let them do it with commercial property, not homes.
I hope you have some success in waking up the Labour party. I doubt you'll be successful though as many Labour MPs are heavily invested in BTL and have several homes. It's no wonder they loved the housing bubble. Gordon Brown for instance took out a mortgage against his taxpayer funded flat to give his wife an income. Ex PM Blair has 4 houses. Prescott was into BTL - he's in negative equity though now I think. Should I be saving him?
It's no good worrying about people in negative equity and people who get repossessed. They survive. I did. They may even go on to vote Labour again. I did - although I wish I hadn't. That said, if your party makes a sensible go at a proper housing policy and brings stability to HOME prices then I may vote for Labour again.
If you can’t afford it, rent. If you think it’s unjust that you can’t afford to buy, DON’T ASK FOR HOUSE PRICES TO BE PROPPED UP BY HAVING THE TAXPAYER FUND YOUR PROPERTY OWNING AMBITIONS.
Typical champagne socialist, expecting the public purse to feather their nest.
I'm not convinced you understand the most basic tenets of economics, based on some of the more naive ideas you've expressed here.
Firstly anyone obsessed with buying in a falling market is already not exactly going to elicit sympathy from me. You also seem to a fallen into the affordability trap. That is..."we can afford the repayments, why are the bank refusing to lend!?!". Oh, if it were only that simple.
Will you be able to afford the repayments once interest rates go up again? Will you be so appreciative of the lax lending you clearly want to see when your new build, ticky tacky box is worth 15% less than you paid for it?
And don't moan about the relative pointlessness of government backed schemes to 'help' first time buyers. Part buy, part rent, "own home" and "affordable housing" (ha!) are all just symptoms of a radically overheated housing market. Owning 25% of a flat is not owning it, whatever Bovis, McNicholas or your local authority would like you to belive.
When a 3.5 multiple (plus 10% deposit) is sufficient to buy a flat I may do it. Until then, I'll leave you with a quote:
"I will not allow house prices to get out of control and put at risk the sustainability of the recovery."
Gordon Brown's 1997 Budget Statement
Money is created by the supply and demand of assets AND the supply and demand of credit backed by assets.
It can also be simply printed but that's never ever advisable. Money hasn't been 'taken off the market' it is simply not being offered up for credit BECAUSE THE ASSETS THAT BACK IT ARE NOT AS VALUABLE AS THEY WERE.
Say, I have an idea for a whizzbang new ways of making widgets, it should make them 10% cheaper to make and I'll corner the market but I need to raise £1m to finance the machinery.
I have a factory worth £5m. I'm not going to sell it but as a going concern it earns me £2m a year
The bank then lends £1m because I have security in an asset of value. The banks will make £0.5m in profit through its margin on the interest rate, I'll spend the £1m buying the machinery, increase my sales from £2m a year to £2.5m a year.
My factory is now worth £6m, I earn £2.5m a year.
So for that £1m, I have created £2.5m in value.
Total effect isn't £1m. I have increased the money supply by £1.5m.
If you reverse the effect, the factory is only now worth £2m, will the bank lend me £1m? Probably not.
Dan, you confuse the control of the money supply in circulation (so called M0 narrow money) with the value of assets (so-called M4 broad money).
Looking at house prices now, why would a bank lend to someone on an asset that is devaluing without asking the buyer to put up a much higher deposit to protect the bank's position?
Problem is, this government have failed to control M4 money supply and it can only grow at a safe rate otherwise it over-stretches and snaps back like an elastic band.
The banks have been lending billions and billions to people who don't have a £1m house, they have a £500,000 house. Or a business that says its worth £200m when in reality it's worth £50m.
IF.. the housing stock was increased, the pent-up demand would stop pushing the price of a house up to these unrealistic levels.
New build/new conversion flats are a particularly weak part of the market. And it is worth wondering why. Particularly if moving within 5 possibly even 10 years is on the cards. Even before the latest round of trouble new build and recent conversion flat buyers selling "second hand" have been finding themselves in negative equity. Because there was an over-supply of "brand new" stock.
Bit like cars. Brand new is good. Classic/vintage is good. But five years old? Nah.
There are a very large number of such flats mothballed by private investors from Ireland, Dubai, whatever. Also by institutions. There are a lot of fire sales around as unrealistic investors go bust. And as these dwellings are regarded as "stock" much like tins of beans there can be clearances and loss leaders and all sorts of goings on that make a private dwelling in that environment more of a risk for any lender than a house.
There is a reason for the lenders' different treatment for this type of property. And that's worth considering. Carefully. Good luck.
The point about government spending is that a huge amount of money has already gone into the banks to shore up their lending, yet they are not passing this on to either consumers or businesses. Credit isn’t all bad – it’s what keeps the economy moving.
Paul Halsell – I would be perfectly happy in a council flat as it has similar rights and security as owning a home but unfortunately there are already 13,000 people ahead of me on the register in Islington where I live.
Sack Draper, move on. Celia Stobart - The problem with renting is that my rent goes up 5% a year regardless of what I do, we’re restricted in the improvements we can make, and of course we could be thrown out at any time if our landlord fancies selling or can’t afford their mortgage. Not exactly conducive to putting down permanent roots. It is a different renting culture in Europe and America where people stay in the same home for years and can treat it as their own.
Eamon G – I don’t agree that repossessions are a market correction and therefore Government shouldn’t do anything. The long term social implications are huge, for example if families are made homeless. I do agree that shared ownership isn’t ideal though, as you are responsible for 100% of the upkeep but you only own part of the property.
John Smith – I'm not saying the bank should have to lend me money to buy a flat that will fall in value. That wouldn’t be sensible for them or me. What I am saying is that there shouldn’t be a blanket rule. In a way I wish they’d go back to the ‘good old days’ where you had to sit down with the bank manager and they would decide whether you could borrow or not. At least it was based on your particular circumstances and would look at the different housing markets around the country. The London housing market is different to that in other cities around the UK.
The housing market hasn't completed it's self-correction. If you buy now, it's very likely that the value of your property will fall. Now this may not be a huge problem if like you say, it's a home and not an investment. But that's not the only consideration you should have. If the value of your property falls, pushing you into negative equity, you'll find in near impossible to move home. So what happens if you or your partner are forced to change jobs, necessitating a move? What if you're unfortunate enough to have the "neighbours from hell" move in next door? What if you and your partner break up, and need to sell the house and go your separate ways? Having equity in your home leaves your options open.
You say that you've managed to save 10% as a deposit, but that 25% is out of reach. I'd say that if you were able to save 10%, then with a little extra time, you'll be able to save that extra 15%. It just means that your purchase won't happen this year. That's not a bad thing. If, as predicted, prices continue to fall, your current 10% will most likely increase. For example, if a flat you want to purchase is currently priced at £150,000. You have 10% deposit (£15,000). If the price of the flat falls to £100,000, your deposit of £15,000 now constitutes 15%. Now I'm not saying that the flat you're looking at buying will fall by 30%, but just trying to illustrate that it won't necessarily take as long as you think to get to that 25% deposit.
Putting down a 25% deposit is in your own best interests. In addition to the clear advantages of positive equity, you'll also be reducing the size of your required mortgage. This will leave you with more spare cash at the end of each month. You're then free to use that spare cash as you see fit. You can spend it in the economy (thereby helping the UK come out of recession sooner), or save it up, and pay off your mortgage early. But at least you'll have options.
Personally, I don't think it's up to the government to help those that are faced with negative equity. I'm sorry if it sounds harsh and uncaring, but far too many people entered the housing market with mortgages 6 or 7 times their annual salary. They did so of their own volition. No-one forced them to. I had the option of getting a 90% mortgage, but decided that it was foolish to borrow 7 times my salary for a two bedroom terrace. I didn't think it was sound financial planning. Now you're free to do as you please. If you can find a lender to give you a 90% mortgage, good luck to you. But please don't go into home ownership expecting the government to step in once you find that you're up the proverbial creek without a paddle.
Quite a few of the regular posters who have been banned ended up at www.globalhousepricecrash.com which is slightly less gold & beans and has a far more relaxed moderation policy. Unfortunately, the global site seems to be offline at the moment.
Anyone visiting here from www.housepricecrash.co.uk can test this by attempting to enter the www.globalhousepricecrash.com address in any of their posts on HPC - but warning you in advance that to do so will possibly get you banned.
I'm with Celia on this (but don't tell her 'cos she'll get big-headed): in days gone by we all rented until we could afford to buy. Patience was always the key but that was so sinisterly eroded when the average Joe realised his home had hidden profit value rather than just being a place in which to live.
There is nothing wrong with renting. Be interesting to know how old Kate is...and yes I do mean that in a patronising 'don't run before can walk' type of way.
Choice of:
1. Whoever pays for this site (any ideas who, as Labour party and Unite are running fast to distance themselves from it?)
2. A coup in the moderators' cupboard (one of them has already been called "Derek's Judas" elsewhere, but I won't name him as I'm getting to quite like him)
3. The Court of Public Opinion (in which he has already been found guilty as hell, just waiting for the sentence to be passed)
4. Any ideas yourself?
And as for reforming the planning system, that's exactly what the govenment did before the credit crunch. Although you're quite right that more urgency is needed to get more homes built.
If you cant do it in 12 years you never will...So Labour never will!
How can anyone write "it will convince first time buyers that Labour is the party which will help them achieve their aspiration of owning a home"
After failing to do it after over a decade of power nothing will convince anyone of anything other than the fact you are heading for decades in the wilderness! Thank god
If Gordon and Alistair didn't need to raise so much money on the bond market to prop up the countries ailing finances I suppose there might be a bit more money sloshing around in the system for you to buy a home.
See that's why it's called the credit crunch, there's only so much value, and only so many things that money can go into.
Mind you, if our gold reserves were a little higher our currency might not have collapsed so much that basic foodstuffs that we have to import have increased so much, because DEFRA doesn't see the need for self sufficiency in farming
Maybe you should call Gordon and Alistair and ask them to cut their budgets a bit so that you can buy your home. What do you think?
Saying you can't have a "stake in the community" while renting is pretty lame, and an insult to the many that do.
If you REALLY aren't interested in making a profit, keep renting, most of Europe does just that, and it works.
Homes are a necessity right? If so, why are you suggesting that they be kept expensive by government props? What the government needs to do is stop attempting to support the price of homes.
Sure, people paid too much and got into negative equity. Some of these people are rich and some poor. Which ones are you suggesting that I should overpay on a house to support? Both? Isn't it enough that my taxes will have to rise to fund the bailouts of the bankers? Now I have to pay more tax and overpay for a house to fund other people who made mistakes too?
Seriously, you can't protect everyone from making mistakes and you shouldn't punish the prudent. The benefits system is enough to catch those who fail. Let's not make us all pay for foolishness.
The best help for first time buyers is to
1. Allow the market to correct
2. Put measures in place to make mortgages difficult to get. Yes DIFFICULT as it will stop people from speculating wildly on house prices which only forces them up. It will also make sure that only the people who understand the seriousness of getting a mortgage actually get one.
3. Restrict Buy To Let. Amateur landlords have been in competition with FTBS for a few years now, gobbling up homes that would've been suitable for FTBs.
4. Start building more homes. If the private builders won't do it, the government should make some effort to finance it.
5. Stop incentivising MPs to own multiple homes. If they had to play by the same rules as the rest of us, they might understand the misery that not having your own home causes.
Something to remember is that prices were forced up by:
1. Loose lending - bad banks, bad regulators
2. Restrictive planning - We need planning laws that ensure buildings are put up more easily but are of the right character - there are too many monstrous buildings put up in the name of affordable housing and often.
3. A vocal and obsessive property media - praising raises, paying lip service to social housing - it's still happening.
4. Indifferent government policy - despite Gordon Brown promising in 1997 that he wouldn't let house prices get out of controd, he did.
i should ask for the money back !
I agree people should be able to buy houses, but *owning a home* is not the be all and all of society. I live in a council flat. It's nice. My neighbours are nice. There a lot's of other people who can say the same.
But under the Labour government of the past decade or so virtually no new council homes are being built.
The solution to the housing problem is for the state to build a large number of good quality "social housing". That will keep private house prices more stable, and provide lots of other people with affordable housing.
However, surely negative equity is a consequence of a market correction. It is very unfortunate for those who bought at the top of the market but perhaps Govt. should have put in place measure to prevent the house price bubble from ballooning out of hand in the first place.
Giving the Bank of England a remit to control the level of house price inflation to agreed formula would stop future generations from having to take on huge levels of debt to pay for a roof over their heads and maintain an acceptable level for housing affordability..
To many people, shared equity and other such schemes just appear to be an admission of failure of policy by the Govt. as there share gets smaller and smaller. Previously house prices were affordable enough for first time buyers to buy a whole house rather than a 25% share.
On a practical note, buying a house seems an expensive way of reducing your energy bills. Wouldn't it be cheaper to find a rented property that was better insulated or persuading
your Landlord of the benefits of a better HIPs energy value when they eventually sell.
In the current market you should be able to get a good deal renting as there are so many more properties on the market.
Good luck
Government is there to provide incentives as well as raise tax revenue.
In terms of 'affordable housing', I'm talking about the general housing stock, not projects given as a sop to local authorities so yet another out of town shopping extravaganza gets built on prime land.
But I doubt it. He is not paid more than £100,000 from the working man's union fees for nothing, he knows how to spin.
One problem is the construction industry, more than any other, requires large amounts of credit to fund projects and as such has been particularly badly hit.
Another problem is there has been a large NIMBY culture arising. While doing work experience I was in a planning meeting for an affordable housing project and looking at the complaints from nearby people. The one I remember the most was someone saying "I'm not against affordable housing, I just don't like the crime that comes with it". That sort of attitude of fearing new people is just mad.
The reason your bank needs a 25% deposit for new builds (as I'm sure they told you but you fail to mention) is because when you purchase it the new build could drop substantially in price (during which time the bank has lost security) before rising again with the market and the local area. The lender will typically assume the asking price for a new build is substantially higher than the building's true value. The added incentives for a new build are not looked on favourably by lenders either.
Solution for you: buy an older home.
Not a solution for the rest of the country: extend the housing crisis in the UK by allowing more unsecured loans.
There is already an excellent forum to discuss this exact issue: www.housepricecrash.co.uk
It is not as simple as printing the stuff. Despite what the Chancellor might think.
There is though, another way to affordable housing.
Housing supply. Increase the supply and the 'rarity value' of a home diminishes and they become more affordable. There are ways to do, VAT exemption on derelict properties is one, reforming the planning and building regulation laws for converting buildings into homes is another.
Unfortunately, this government has failed to provide an adequate housing supply for well over 10 years with demand outstripping supply; it also opened the door to immigration and family breakdown hasn't helped either; further stoking demand.
"Property is theft" said nine-homes Meacher.
Or get elected...
Comparing yourself to people who borrowed 100% or more and are now sitting on negative equity is hardly a compelling argument.
Encouraging first time buyers to purchase when house prices are falling is irresponsible. Far better for the government to encourage house building so that when prices finally hit bottom in about two years' time there will be plenty of space for everyone.