Editorial: Mortgages and the housing market
The days of rocketing house prices in the south east of England appear to be over for the time being. Remember those stories about broom cupboards in South Kensington on offer at 38,000 and the joke people made about their house earning more in a month than they did? At the height of the boom house prices in Bedford Park in London rose from £250,000 to £350,000 in six months and flats in that bastion of Yuppiedom. London’s Docklands, were being bought and resold at a big profit before they were even finished, let alone lived in.
All of this is history and the talk now is of prices stagnating and even falling in some places, including Docklands. The notorious practice of ‘ gazumping”, where the seller reneges on a deal in order to get a higher price, is being replaced by “gazundering”, with the buyer doing the reneging to get the price down.
Of course prices couldn’t go on rising for ever, even in the booming economy of the south east. What has stopped them is the big increase in mortgage interest rates and the abolition of multiple tax relief which put an end to groups of people claiming on the same mortgage. Many workers are in trouble because while prices were rising they paid more for a house than they could afford on the assumption that resale would be at a profit. Now they may not even get their money back if the extra interest forces them to sell.
It is worth mentioning that, as usual, the “experts” are in complete disagreement about where the market is going. Building societies, banks, estate agents and academics in turn tell us that house prices in the south east will continue to rise at various rates, stay as they are, or fall. The Woolwich sticks its neck out further than all the rest by predicting the rate of price increases to the end of the century! All of them are simply guessing because the anarchic nature of any market guarantees that no one can tell which way it will go in six months never mind ten years.
Inflated house prices were bad news not only for those workers who had to pay over the odds or were priced out of the market altogether, but for some sections of the capitalist class too. The Confederation of British Industry (CBI) reports that many of its member companies in the south east are unable to expand because high house prices prevent them from recruiting or even keeping staff. The CBI wants the planners to take the pressure off prices by making more land available for building in places like Surrey and Sussex.
They are not alone in this wish. The House Builders Federation (HBF) blames high house prices on local authorities who refuse to release more land, especially in the green belts around urban areas. The HBF points out that scarcity of land drives its price up and the cost of land already accounts for most of the price of a house.
While, however, there may be strong economic arguments from the standpoint of the CBI and the HBF for release of more green belt land, there are equally strong political arguments against them. For example, the environmentalists are bitterly opposed to any such move, but more importantly so are many of those people who already live in these areas. They don’t want their village or cosy suburban estate swamped by yet more housing developments which will, in any case, reduce the value of their own homes. Nicholas Ridley, the Environment Secretary, has dubbed these people NIMBYs (Not In My Back Yard) but he and the rest of the government must take note of their feelings because a lot of votes are at stake.
Paying for housing by installments is an exclusively working class problem and one which most workers face at one time or another. If they are council tenants then the rent may be increased beyond their means. If they “own” (are paying up) their home then extra interest on the mortgage might be what finally breaks them. Repossessions by building societies climbed from 11.000 in 1984 to 23.000 in 1987. The total for 1988 is expected to be slightly down due to low interest rates in the first six months of the year but repossessions in 1989 should break all records. Incidentally, this 23.000 total doesn’t include repossessions by banks as they do not publish figures.
But can people who live in houses which cost, say, £200,000 or more really be described as workers? They certainly can if they have to work for a wage or a salary, and those hundreds of “Yuppies” recently sacked in the City of London will of necessity have to find another job. Whether or not they hold on to those swank homes in Docklands will depend on it.