Home sweet home?

More bad news on housing…

Housing costs hit families
Last Modified: 05 Sep 2007
By: Bridgid Nzekwu

A home fit for a footballer, wealthy Russian or mega-rich tycoon.

With price tags which run into millions of pounds, many houses in Chelsea are strictly for those at the top end of the housing market.

But it’s not just lavish mansions that are out of reach for the ordinary buyer.

Figures from the Royal Institution of Chartered Surveyors reveal just how unaffordable it’s becoming to get a foot even on the bottom rung of the property ladder.

Twenty percent of the housing market is made up of first time buyers and they face the most depressing situation since the 1990s. The RICS says monthly mortgage payments are eating up biggest chunk of disposable income for 17 years.

And it’s now four and a half times more difficult to save a deposit for a home than it was a decade ago.

In 1996 a couple in the bottom quarter of earners would have had to save 21 per cent of their joint take home pay for a deposit to buy a home.

Now that same couple would have to save an astonishing 96 per cent of their joint take home pay. And in some parts of the country it’s virtually impossible for many first time buyers.

In London that low-earning couple would need 112 per cent of their joint take home pay to get on the property ladder.

In the last 10 years house prices have grown three and a half times faster than average salaries. A three bedroom semi-detached house now costs just under 200 thousand pounds – that’s almost six times the average salary.

According to the TUC, a key factor distorting the housing market for ordinary buyers is inflated boardroom pay and City bonuses which it blames for driving up property prices. Some estate agents agree.

HOUSE PRICE AFFORDABILITY

1997
Average salary: £19,375
Average house price: £69,657

2000
Average salary: £22,105
Average house price: ££86,095<

2004
Average salary: £25,906
Average house price: £161,742

2007
Average salary: £28,889
Average house price: £199,770

Source: ONS and Halifax

Credit crunch
Add to that recent turmoil in the global credit markets, and many predict lenders will make it more difficult to borrow.

All these factors are worrying consumers. The Nationwide Building Society says all measures of confidence dropped in August – the first time that’s happened since December 2006.

The government insists its plans for three million new homes by 2020 is the key to the housing crisis.

It’s some comfort to buyers that house prices have started to slow down in recent months. But while demand outstrips supply, affordability will remain a huge problem.

And if you “own” a home, can you keep it?

A nation (re)possessed?
By Lissa Cook
BBC Radio Five Live Report

Are increases in your mortgage repayments set to break the bank? Are the credit card bills piling up on the doormat?

If the Bank of England pushes up interest rates for a sixth time on Thursday it could be the final straw for the people clinging on to the bottom rung of the property ladder.

Repossessions have risen by 30% over the past year and are at their highest level for seven years.

And it’s not hard to see why. We’ve had five interest rate rises in the past year. Debt is at record levels and inflation is squeezing our disposable income.

But there are schemes which claim to offer a solution: one which allows you to pay off your debts – and stay in your own home.

Only instead of owning your house, you sell it – using the proceeds to clear your mortgage and other debts – and become a tenant, paying rent.

Low offers

It looks attractive. But Peter Tutton, of Citizens Advice Bureau, says it’s difficult to know if you’re getting a good deal – not least because of the inevitable emotional vulnerability of those faced with losing their home.

“The sale could be at a very, very large discount to its market value – in some cases 65% of the price you would get on the open market,” he says.

Insecurity

His colleague Hayley Rowley, a CAB specialist support officer in Wolverhampton, is seeing some horrific cases.

“We saw an elderly gent living on his own whose home was valued at about £165,000,” she recalls. “He had no mortgage but had fallen behind on credit cards.

“He agreed to sell his house for £40,000, so that’s £120,000 below market value, and remains there – at the mercy, really – of the new owner on a six-month assured short-term tenancy, that can be ended at any point with two months’ notice.”

And for those taking this kind of deal, there is no guarantee that the new arrangement is permanent.

Mr Tutton cites cases where the landlord who buys the house defaults on the new mortgage – and the bank takes back the house anyway, leaving the resident out in the cold.

Housing charity Shelter says it, too, is starting to see cases of people even being made homeless after being evicted.

Urgent

But there is nothing illegal about this.

Unlike equity release plans – which were brought under legislation recently – sale and rent-back schemes are unregulated.

Peter Tutton says interest rate rises mean this is an urgent issue.

“The government really needs to act now, or we’re going to see some dreadful scandals three or four years down the line as people start tumbling out who’ve been horribly mis-sold an inappropriate product,” he says.”

Victoria Taylor’s case seems to fit the bill. She had lived in her home for 26 years but when her partner left her she could no longer meet the mortgage repayments of £325 a month.

Still, the deals she was offered seemed far from good value.

“A lot of them were offering only £50,000, on a house that was valued at £100,000,” she says. “And their rents were extortionate – they were for £475-£500 a month.

“Had there been another way I out I wouldn’t have done it, but there was just no other way out if I wanted to keep the house.”

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One Response to “Home sweet home?”

  1. Central London Says:

    “many houses in Chelsea are strictly for those at the top end of the housing market.” – this also includes Kensington, Belgravia and knightsbridge, just to name a few.


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