Home security?

Just a single percentage point rise in interest rates would be enough to force nearly 10% mortgage-holders to take drastic action so they could afford debt payments, such as cut essential spending or earn more income (for example, by working longer hours or a second job ) in order to afford their debt payments the Bank of England has warned – while a two point increase could affect those holding around 20% of mortgage debt.

Bank Deputy Governor Paul Tucker said: "If interest rates were to rise without an improvement in income, the debt servicing burden would increase."

Doom and gloom

Despite record low interest rates, falling by more than one-fifth since in 2008 the cost of owning and running a home in the UK has risen over the last year.

Bank of Scotland research found that soaring gas, electricity and main-tenance costs were the main causes of the rise. It showed that the average annual cost associated with owning and running a home rose by 1.4%, or £116, from £8525 in March 2010 to £8641 in March 2011. Utility costs were up by £102 on average and maintenance costs by £33.

Bank of Scotland housing economist Suren Thiru said: “Household finances remain under pressure with the significant drop in mortgage payments since 2008 mostly offset by increases in other household bills. Rising utility bills have been a clear driver behind this, along with increases in maintenance costs. The current strain on household finances is particularly concerning at a time when earnings growth remains weak.”

Another study revealed over-50s are suffering a drop in their quality of life as their incomes are squeezed by low interest rates and high inflation. Research by Saga found that around 56% of older people cite the rising cost of living as their biggest concern, more than double the 27% who are most worried about their health.

losing homes

Repossession numbers began to rise again during the early part of 2011, jumping by 15%. A total of 9,100 properties were taken over by lenders during the three months to the end of March, according to the Council of Mortgage Lenders.

The group has predicted that a total of 40,000 people will lose their homes this year, up from 36,300 in 2010, due to the squeeze on household incomes as a result of the combination of rising taxes and living costs and slow wage growth. Around 166,900 people were in arrears of at least 2.5% of their outstanding loan at the end of March.

Industry commentators have also warned that Government initiatives to help keep people in their homes may simply be delaying a spike in repossession numbers.

A bankrupt society

A record number of Scots will be made bankrupt in 2011, according to accountant and business adviser PKF. Accountancy firm RSM Tenon also predicts that personal insolvencies in the UK will set new records in 2010 and 2011.

PKF predicts that final figures will show about 22,000 Scots were sequestrated (the Scottish term for bankruptcy) or took out a Protected Trust Deed (PTD) in 2010, or 425 a week, and that this year will see even higher levels of personal insolvency. Personal bankruptcy during 2011 will be impacted by the Comprehensive Spending Review (the full impact of the CSR is yet to be felt) , which is likely to result in higher levels of unemployment among public sector employees, and potentially by the effects on mortgage-payers of rising interest rates.

“Many people are only able to cling on to their homes as long as their mortgage payments are being kept at an historicallly low level due to the 0.5% base rate. Once interest rates start to rise, I believe we will begin to see a considerable growth in what might be termed the “middle class insolvent” Bryan Jackson, corporate recovery partner, explained. It was likely that interest rates would have to start rising this year, whereas the housing market was unlikely to start a recovery until 2012 at the earliest, which meant “there will not be the escape route of rising equity to reduce debts which has been used by thousands of individuals in the recent past”.

The VAT increase, coupled with rising utility costs, would pile further pressure on those who were staving off insolvency. There is already evidence of an increased take-up of payday loans and other products from high-interest lenders which only temporarily put off the inevitable.

11 yr wait to buy a house

First-time buyers in Scotland face an 11-year struggle to break into the property market, with many more frozen out by low wages and high house prices, according to new research.
On average, Scots trying to get on to the property ladder will have to find a £21,000 deposit for their starter home, according to the Halifax. It means at least a decade of scrimping and saving to get a foot on the ladder. Someone earning the average Scottish wage of £25,350 and saving one-tenth of their take-home pay would need more than a decade to amass the down payment, while still paying rent.Overall, the average house price paid by a first-time buyer in the UK has more than doubled over the past decade, increasing by 102% from £68,644 in 2000 to £138,682 in 2010 – equivalent to a weekly increase of £135. With such high demands made of those looking to buy, the average age of a first-time buyer in 2010 was 29. But it estimated that the average age of first-time buyers without financial assistance, such as a parental loan, had increased from 33 in 2007 to 36 now.
While the average-earning Scottish buyer will take 11 years to amass a deposit, a typical buyer elsewhere in the country would take nearer 15 years if they saved at the same rate.

Families live in fear of losing home

More than half a million Scottish families are heading into winter weighed down by fears about keeping a roof over their heads, a new study has revealed.Research by Shelter showed thousands of people face serious problems trying to stay afloat.

The charity found that more than one in three homeowners are worried about keeping up mortgage payments, and one in six are already struggling to find the money each month.

“We know from the cases we see every day that it only takes one problem, like a bout of illness, or redundancy, to tip people over the edge and into a spiral of mounting debt and arrears.” Shelter Scotland director Graeme Brown said

One in every six mortgage holders across the UK was actively struggling to pay a mortgage.

home sweet home , or is it ?

The BBC reports that a total of 7,500 Scots are set to lose their homes this year.

That is 20 a day.

The Council for Mortgage Lenders had already raised the forecast from 48,000 to 75,000 repossessions across the UK.

"I think if things continue to get worse in the wider economy, it's going to get an awful lot worse and I think that's a real problem. We have to remember, you have two hundred thousand people in Scotland on housing waiting lists already. If you have people coming out of their own homes, they'll have to join those lists which is going to put even greater demand on housing. If the number of repossessions rises to seven and a half thousand as may well be predicted or, or even greater, apart from just the individual what impact would this have on communities?" - Shelter Scotland chairman Graeme Brown said

forgotten victims

Charities estimate that more than 8,000 buy-to-let properties could be repossessed in the coming year, with at least 10,000 people being made unexpectedly homeless. In some cases families are given no warning at all, sometimes returning home to find locks had been changed and their possessions out on the street.In one instance a family had to spend the night sleeping in their car, before being moved into emergency hostel accommodation.

Shelter chief executive Adam Sampson said "Tenants who have kept their side of the bargain by paying their rent are being thrown out on to the street because their landlords have defaulted on the mortgage."
Leslie Morphy, of Crisis, said "We risk forgetting that tenants of private landlords are extremely vulnerable to the recession,"

One law for them , another law for us

So much for government assurances of sympathetic treatment for mortagage arrears by the banks during this credit crunch and slump.

The Financial Times reports a landmark High Court ruling under a 1925 law has paved the way for mortgage lenders to sell the homes of borrowers in arrears without seeking a court order after just TWO mortgage payments have failed .

The judgment dismissed the human rights defence of the homeowners in arrears and backed the right of GMAC-RFC, a specialist subprime and buy-to-let lender that is part-owned by General Motors, to appoint receivers and auction the property. The former homeowners were then evicted for trespassing by the new owner, Horsham Properties. The sale circumvented the court process through which judges can give struggling borrowers more time to arrange repayments .

John Gallagher, principal solicitor with Shelter, the housing charity, said the case “gives the green light” for lenders to sidestep courts with legal remedies “rooted in the 19th century and repugnant to most people’s sense of justice”.

Who cares about the poor ?

Our hearts bleed for them ...i think not . More than £100 billion will be wiped off the personal fortunes of Britain's wealthiest industrialists and entrepreneurs in the coming months as tumbling stock markets and sliding property prices take their toll according to The Times . What will the effect be on those super-rich , i wonder . One less house in their tropical paradises , one less luxury limosine ...

Certainly it will not the same as the consequences the Credit Crunch will have on the working class .

The number of people seeking advice from the Citizens Advice Bureau about how to manage their debts has surged by a third in the past year according to this BBC report. 77,000 new callers in England and Wales with mortgage and loan arrears.

"These figures show how the current economic situation is hitting vulnerable and low-income households the hardest."

Mortgage lenders, on average, started repossession action when people were four months into their arrears. No government bail-out or rescue for the poor .

House repossession was rated as the event most likely to cause mental health problems according to a survey.

"Even for people lucky enough to hang on to their home, the stress and worry of arrears building up can be enough to harm your mental health - this survey shows it worries millions of us."

A man's home is his castle - until he can't pay the bank

The number of properties repossessed by mortgage lenders in the UK has risen by 48% in the past year it has been reported .
The number of mortgage holders behind with their payments has also gone up.
That rose by 29% .
One of the most vigorous repossessors has been the Northern Rock bank, now state owned. It revealed this week that its own repossessions had risen by 67% in the past year .
Capitalism expects the system and the government to bail it out but when it comes down to Joe Public requiring financial assistance - no chance .

tails we win , heads you lose

Before it was rising house prices that left workers unable to get a foot on the housing ladder , now its the refusal of mortgages .

It is reported that Building Societies are now only lending to one in 10 would-be homeowners, compared with a traditional level of almost one in five. A 68% decline means that building societies are scaling back lending as a result of the credit crunch even more severely than major mortgage bank rivals, such as Halifax and Cheltenham & Gloucester.

And for those workers lucky to have a house , prices in the UK are dropping by almost £500 every week . The Halifax said the average home price has fallen £8,136 since the start of the year reaching £189,027 - a fall of £479 a week. Two other surveys - from the Nationwide and Hometrack - also said it was the first time since the mid-1990s that house prices were down year-on-year.

Seema Shah, economist at Capital Economics, said: "The last time we saw two such large falls in consecutive months was during the depths of the housing market crash of the early 1990s, and even those falls fell short of the declines seen in the past two months...With the economy and labour market set to weaken further, our forecast for a 20% fall in house prices by end-2009 is firmly on track,"

Under capitalism , workers just can't win

No Silver Lining

Does every cloud have a silver lining ? Will falling house prices help those to get the first time buyers on the rung of the property ladder ? Apparently not .

Homeowners and those hoping to step onto the property ladder have both been dealt a blow after a senior Bank of England policymaker warned that house prices will fall but the impact of the credit crunch means affordability won't improve.

The global economic environment has become tougher, forcing lenders to become more cautious about extending mortgages to borrowers . First-time buyers in particular are being forced to accumulate bigger desposits, making it more difficult for them to benefit from a long-anticipated drop in house prices.

"We may see prices fall this year, but because of credit conditions, affordability will probably not improve at all," Miss Barker said. She added: "Finding deposits has become more difficult because of the credit crunch..."

British banks have raised the cost of borrowing for homebuyers with the smallest deposits to a seven-year high and have declined to pass on two Bank of England interest rate cuts. Central bank figures show that the average rate offered by lenders on loans for 95 per cent of the price of a property, fixed for two years, is 6.55 per cent - the highest since September 2000. In January, mortgage approvals were close to the lowest in nine years.
The UK housing market has slumped to the worst since the eve of the nation's last recession in 1990, a survey by the Royal Institute of Chartered Surveyors showed last month.
Too few homes are being built to meet Britain's housing needs, and that the number of new houses built would probably fall this year.

Debt for the workers

The [so-called] middle classes have become the latest victims of the spiralling debt crisis because of “super-inflationary” rises in the cost of living, a leading debt group said yesterday.

The Consumer Credit Counselling Service said that while steep rises in energy and mortgage costs had hit the oldest and poorest hardest, the increases had been so dramatic that even the professional classes were struggling. Experts said that the figures marked a more serious era in the country’s battle with debt because they showed that the problem had extended from borrowers with credit cards and personal loans to all households, irrespective of how much they had borrowed or what they earned.

Rises in mortgage costs have had a disproportionate impact on higherincome earners because they spend more of their disposable incomes on property, the counselling service said. It found that this group now spends 44 per cent of their net salary on their rent or mortgage, up from 34 per cent five years ago; households below the poverty line spend 8 per cent.

The figures came after Citizens Advice Bureaux reported a 35 per cent increase in inquiries from homeowners worried about paying the mortgage.

Experian, the credit reference agency, published a debt map of Britain yesterday, giving a breakdown of how much towns and cities owe. Residents of Chester-le-Street have borrowed the most on credit cards and loans, with an average amount outstanding of £5,248. Borrowers in Northern Ireland owe the least, with an average of £2,291. Experian said that mortgage balances had grown the most in areas that had experienced the highest house price growth in the past 12 months, such as Northern Ireland, Kensington & Chelsea and Wandsworth.

The average fuel bill has reached more than £1,000 a year after recent price rises by energy companies, while the average home loan went up by almost £9,000 between 2006 and 2007, from £118,536 to £127,039, the Council of Mortgage Lenders said.

Credit Action, another debt charity, said that second-home owners and older people who had taken out equity from their homes to help to fund their retirement were at particularly high risk from rising living costs, because of their exposure to the downturn in the property market as well as more expensive mortgage rates on these deals.

The counselling service said that the profile of those asking for help was becoming “older and poorer”. For the first time it found that customers over the age of 60 had the highest level of debt, at £29,642. The inflation rate for people over 75 is now 3.4 per cent, compared with an official inflation rate of 2.5 per cent, according to Alliance Trust, the investment group.
Other research showed that an increasing number of desperate homeowners are resorting to dangerous measures to get out of debt. In the past three years 6.5 million mortgage borrowers have lumped separate credit card and personal loan debts into one, according to Moneyexpert.com

The director of Credit Action, said: “This is a new era for the UK’s debt crisis. Previously, debt problems were confined to people with credit cards and loans. Now, everyone is struggling with essentials, such as utility bills and mortgages.”

Debt Fears

One in five Scots home owners struggle to meet their mortgage payments, a survey suggests.

Almost one million people find it difficult to cover their monthly repayments and other debts .

Researchers also found 18% reported having to rely on credit cards or loans to pay for daily essentials like food.

Head of personal insolvency for the accountancy firm KPMG in Scotland, Andrew Kennedy, said: "Those people who have been robbing Peter to pay Paul, transferring balances from card to card, remortgaging and taking equity out of their property to pay off spiralling debt are fast running out of options."

KPMG said the global credit crunch meant payment troubles could worsen over the coming months ,people who previously had access to competitive mortgage deals, despite being late with a couple of payments, are going to find it very difficult to find a deal , and that the credit crunch is already seeing credit card companies reducing credit limits and increasing their rejection rates for new customers.

“Debt is the slavery of the free" - a Roman , 1st century B.C.
" A man in debt is so far a slave" - an American , 19th century AD

Bankrupt Scotland

From an editorial in The Herald

Although it is traditionally people on the lowest incomes who get into debt they cannot repay, the boom in consumer credit, fuelled by rising house prices, has brought many middle-class families to the point where they are only a couple of pay packets away from not being able to meet their repayments. It only takes one setback, such as their marriage ending or losing their job, to plunge them into unmanageable debt.

The 14.5% increase in the number of Scots being declared bankrupt between 2006 and 2007, however, is likely to be a harbinger of worse to come. The scale of the situation is brought home by the fact that the 1563 Scots declared bankrupt in the last quarter of 2007 amounted to nearly twice the average number for any three-month period three or four years ago.
This is a reflection of the record levels of personal debt (one estimate of Britain's debt from credit cards, loans, overdrafts and mortgages is £1.35 trillion) but when that level of borrowing collides with the current credit crunch, these personal disasters will be multiplied. That is expected to happen later this year as fixed-rate mortgages reach the end of their term and require to be renewed, with lenders imposing higher rates to reflect the overall increase in interest rates since August 2006.

There can be no doubt that the tide of debt is rising alarmingly. Home repossessions leaped by 30% in the first six months of last year and householders in Scotland cannot necessarily rely on the relative stability of the housing market north of the border to protect them from the perils of negative equity. Both Motherwell and central Glasgow have been pinpointed as high-risk areas on the latest map produced by the credit reference agency Experian.

With Scottish companies failing at a rate of approximately 55 per month and the Financial Services Authority describing 840,000 mortgages as a cause for concern, the outlook is particularly grim.

Mortgage Blues

AROUND 123 homes will be repossessed every day during 2008 as people struggle to keep up with their mortgage repayments, research claimed today.
The Royal Institution of Chartered Surveyors (RICS) said just under 45,000 people would lose their home during the year as the cost of servicing a mortgage remains close to record levels .

The figure is in line with estimates from the Council of Mortgage Lenders, which also expects 45,000 homes to be taken over by lenders, while City watchdog the Financial Services Authority said that 840,000 mortgages were a "cause for concern" due to their riskier lending characteristics.

It said a first-time buyer couple who were both on the bottom 25 per cent of earnings, bringing in £26,595 a year after tax, would now have to save the equivalent of 104 per cent of their joint annual take-home pay, or £27,729, in order to afford the deposit, fees and stamp duty for a typical home.

The property ladder

Research by the Bank of Scotland, found that young people faced a financial struggle to own property, with the average price paid by first-time buyers soaring 113% from £57,929 in 2002 to £123,213 this year. With the threshold set at £125,000, many first-time buyers paying more than the average price of £123,213 will have to find an extra 1% of their property price on stamp duty.
The average property is now out of reach of first-time buyers in 95% of places, according to the fifth annual First Time Buyer Review. Edinburgh and Helensburgh are the least affordable places for first-time buyers and properties there are 8.2 and 7.5 times the average income of a first-time buyer household. The deposit required by first-time buyers has soared 238% since 2002 and the average amount put down for a first property in Scotland is £25,951 - 95% of an average full-time worker's salary. Five years ago it was only 35% of an average worker's full-time earnings.

"It is beyond the reach of people who are earning between £12,000 and £16,000 a year to save up for that kind of deposit. " Peter Kelly, director of the Poverty Alliance said. "People are putting themselves in more risky positions and it will be people who are on the low end of the income scale who will pay the price for that."

Housing charity Shelter Scotland said that an additional 30,000 affordable rented homes, not including general housebuilding, were needed by 2011. It said that more than 200,000 people were on waiting lists and 9000 households were in temporary accommodation in March this year.

For a socialist take on housing read Building Profits Versus Building Houses

And for a more recent article on the house property price bubble read here

Nor should we think of the lack of shelter as just a Scottish problem , of course .

A man, believed to be in his sixties, was found dead on a wooden pallet in the Place de la Concorde in the heart of Paris victims of homelessness and the cold . Another man, 62, was found dead in his car in Vanves, just west of the capital. The deaths have provoked new quarrels over the alleged failure of successive governments to provide lodgings for France's alleged 200,000 homeless people. One pressure group, Les Morts de la Rue (the dead on the street), claimed that at least 200 people, between 18 and 80, had died prematurely while sleeping rough in France in the past 12 months.

Jean-Paul Bolufer, the head of the private office of the Housing minister, Christine Boutin , said last month that it was "scandalous" that some relatively wealthy people lived in subsidised, publicly owned housing while others lived on the streets. a newspaper revealed that he was paying 1,200 Euros (£870) a month rent – a quarter of the market price – for a 190 square metre apartment in an upmarket area of the Left Bank. There were at "least 200,000" other well-off people living in subsidised flats in Paris, he said.

Personal debt increases

Over 8 million British adults are in serious debt and over 2 million are struggling with repayments. 18% of adults in Britain are in £10,000 or more of unsecured debt such as credit cards, overdrafts, loans and store cards .The number of bankruptcies rose by 10 per cent in the first quarter of 2007 compared with the same period in 2006. Around 420,000 people were prosecuted for defaulting on loan repayments in the first six months of this year - up eight per cent on 2006. Scotland was revealed as the area with the highest proportion of indebted residents .

The Bank of England has raised the cost of borrowing five times in the past year to 5.75 percent -- the highest level in six years. Analysts expect another rise to 6 percent by the year end . High levels of unsecured debt are clearly linked to the rise in interest rates over the last 12 months . The record rise in house prices -- especially in London and the south-east -- has led to a growing discrepancy between mortgage payments and salaries. The high pressure to maintain social and commercial status often goes hand in hand with high expenditure on the high street. Borrowers affected by the higher interest rates now are storing up debt problems for the future; instead of making cuts in their personal expenditure, they are taking on further unsecured loans and credit cards .

See here about the bubble bursting