Even banks are fretting about record high household debt.
By Graham Vanbergen, United Kingdom, TruePublica:
“One in 65 people is now worth seven-figures after surge in the price of property and stock markets” the newspapers have been crowing. “The number of British millionaires has shot up by 40 per cent in the past five years”.
We are all being led to believe that a “Surge in property prices and stock markets means there are now 715,000 millionaires in the UK alone”. Not only does this make the other 63,385,000 feel left out of this boom in inequality, it is also inaccurate, misleading and bathed in exaggeration.
The truth is that this is a UK mainstream media campaign instigated by a government with no new policy ideas to get the British economy working hard for everyone. To fill the void, an illusion of greater prosperity is constructed.
UK house prices may have risen 3% over the last year. But the UK-wide rate is utterly meaningless, thanks to an already immense and ever expanding North/South divide. Property prices in The City of London and inside the M25 massively increase the average property price not just in England but the UK more widely. The numbers for these areas also distort the time taken the sell, cash sales, mortgage numbers and general availability.
Contrary to belief, the volume of actual sales has crashed by about 35 per cent in just 4 years and 40 per cent in 8 years and that number is quite likely to increase over the next year or two to 50 per cent.
Part of the problem is that the middle-aged have accumulated money in the good times. They are, quite rightly, frightened to death of ‘financial consultants’, banks, ‘advisors’ and years of treasury plundering – all of whom seem to have a licence to steal hard earned, tax-paid money being saved for retirement. This savvy generation have taken matters into their own hands.
15-20 per cent of all property that comes to the market is now bought by buy-to-let landlords. These landlords have an average deposit of nearly £100,000. They are banking on driving down their mortgage debt over a number of years, paid for by rent and then end up with a tidy monthly income to cover the loss from the thieves who would have stolen their pension funds in the first place. The latter part of this ruse is government policy and it helps to drive property prices ever higher.
In the meantime, these new landlords keep their investment for an average 17 years – three times the average and therefore stemming supply and putting even more price pressure on the market.
Then we have the government backed schemes that is pouring literally billions of taxpayers money into what can only be described as sub-prime mortgage debt that is fuelling price inflation even further.
First, we had Funding for Lending, a scheme that dramatically achieved nothing, but did wonders at lowering mortgages rates.
Help To Buy, was Osborne’s next market-distorting scheme that effectively forces the already overcommitted taxpayer to underwrite £12 billion of mortgage lending to people who haven’t got an adequate deposit of their own, or who lack the income to have a go at producing one and who therefore shouldn’t really qualify for a mortgage at all.
Then we had Save-to-Buy where the taxpayer will pay £50 for every £200 saved if it is used as deposit. The new help-to-buy Isa means, if a first-time buyer can save £12,000 in a tax-free account, the government will add £3,000. Forget the £2 billion cost to the taxpayer – again.
In the meantime, over a quarter of us have absolutely nothing put away for a rainy day, and nearly 60% have less than £1000 of savings, with the Government pushing pension dates back and back. What the Independent recently called ‘the silent crisis’ is distressingly well documented.
Unsecured debt now stands at £10,000 per UK household – higher than ever – and this increases every month. An astonishing £4bn has been added to this debt in 2015 alone, when the inflation rate is almost nil. The debt charity Money Advice Trust (MAT) said in a report yesterday that councils sent in the bailiffs to collect debts from households on 2.1 million occasions in 2014/15.
Total household debt (including secured debt) to income ratio heads towards 172% – exceeding its previous peak in the run up to the financial crisis – this is now a concern even to the banks.
A week ago, the Financial Times noted that secured (mainly mortgage) debt is now ‘a serious concern among lenders’. Two days ago, the Prudential confirmed that there has been a 19% rise in debt problems beyond either secured or unsecured loans, relating mainly to rent arrears: such arrears across the social and private rented sector rose by an average of 28% in 2014/15. And a staggering increase of 48% in rent-related debt in the private rented sector. The Bank of England has reported that half a million homeowners now face mortgage arrears with a very minor rate increase.
Considerable pressure has been put on the banks to hold off on repossessions. Ten years ago if you fell behind on mortgage payments by three months, you were evicted and repossessed – not so today.
All these incremental changes by government are market interventions designed to stop the inevitable happening. They are now unable to reverse out of this death spiral. It is clear, house prices are being driven up on dramatically lower volumes of sales supported only by financial devices that even paracitical bankers would be proud of engineering.
Governments, past and present, have continually approached the housing market as a barometer of wealth and economic success. They have excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made bad loans.
A healthy property market is driven by some basic factors; sustained economic growth, full time – permanent jobs with wage growth keeping up with inflation, a price to earnings ratio that makes housing affordable, mortgage availability and stable interest rates, consumer confidence and supply.
Economic growth is unbalanced and poised to enter negative territory, full time jobs have collapsed in the UK since 2008 and now only account for 1 in 40 new jobs. Earnings have dived, affordability of an average home has vaporised, interest rates are now looking volatile and the supply of stock has nearly halved. Most of these new so-called millionaires are unable to get their cash. It’s tied up in over-inflated property.
There is a perverse and pervasive stupidity that allows bubbles to continue to extremes. When they escalate, investors get something for nothing. It’s like Santa scrapped the naughty and nice rule and started stuffing everybody’s sock with a huge heap of free cash. And everyone believes this fantasy will continue. No one wants it to end. Then everyone goes into denial and that further inflates the bubble — aggravating the extreme divergence in supply and demand.
Most people will be surprised when the UK housing market pops as every bubble in history has. And the government will blame international events – they always do. By Graham Vanbergen, TruePublica