A Handful Of Housing Horrors!

It would be such a help to borrowers if the Government brought back MIRAS relief. Even if they limited it to the first £1,00,000 of a mortgage, that would mean that people on lower incomes whose mortgages are smaller because they cannot afford big homes would benefit. The tax relief could also be linked to income, making it a fairer deal for all.
But the Government is not interested in helping the average man or woman who works hard and barely manages to keep afloat, as the abolition of the 10p band showed very clearly. We live in troubling and callous times. Heaven help us!

Sadly this situation reverberates of the 90s housing crash, preceeded firstly by escalating interest rates then falling ones which effectively knocked out all sectors of the spending public, creating the protacted recession which is still fresh in my memory, and many of my friends and relatives.
Be absolutely sure that the government saw this coming.
We have an accountant in charge of this country- which strikes me as very odd as i wouldn't let either an accountant or bank manager run a business as they simply don't have the skills necessary- and this accountant is surrounded by (extremely well paid) advisors, so please don't tell me that they didn't see this coming.
The situation of negative equity, hand in hand with the rapid rise in the cost of living and the very real threat of lay offs (as is happening in my household), and the madness of this government in failing to cap
energy suppliers in their mission to empty the bank accounts and gobble up all the salaries of all who live in this country.
It's an outrage!!!
And surely we must soon, as a country, stand up and be heard and tell those, who are abusing the trust we put in them at the last election, that the day has come to get a strong leader in place, who looks at the larger picture, not just the bottom line, which Mr Brown is unable to do, along with his very weak governement ministers who are only interested in their jobs and fattening thier salaries.
As ever this governement are insisting that this situation created by matters beyond their control.
Codswallop!
Start by capping the greedy energy suppliers- the billions of pounds profit are still ringing in my ears. A large chunk of those profits will be handed out in bonuses to the fat cats, and not reinvested- as i don't notice too many improvements to our supplies.
Wake up ministers and start acting now, before the whole economy collapses!

MIRAS would be something particularly bad to introduce since it would be a tax cut for the rich. Why should people you cannot afford to buy a house be penalised by the tax system? Buying a house does not actually contribute to growing economic wealth so should not be rewarded through a tax system.

I think the unfortunate thing is that people have paid more than they could afford for houses and this debt simply won't go away quickly. Everyone always thought it would be easy to remortgage. Everyone thought that rates would stay low - now we realise that mortgage rates are not connected to base rate! Everyone thought that houses prices would keep on rising for ever. People in the UK did not consider the possibility that house prices would fall. And as much of the articles on Fool state, this doesn't matter if you can pay the mortgage!

Bimber - Your suggestion is ridiculous - I cant believe you even said it. Which house would you buy then an absolutely gorgeous mansion/pent house flat or a little terraced house on the outskirts of a city. Pathetic suggestion, nearly everyone in the country could afford the £100,000 price tag of a luxury home!!!!

I tought the reason for the comment section at the end of an article was to do just that comment on the article not slate other peoples opinions. come on people sort yourselves out

Middle Age Spread, I simply cannot let your slur on accountants pass unanswered.

Firstly, Gordon Brown is not an accountant, he is a Doctor of History!

Secondly, if you wouldn't let an accountant run a business, more fool you - even accountants in public practice run their own business very well on the whole. On the other hand, accountants in industry, like myself, very often progress to senior executive positions, indeed a third of FTSE-100 CEOs are accountants.

Simply don't have the skills necessary, indeed!

middleagespread, you say "we have an accountant in charge of the country". Can you please tell me the qualifications this "accountant" has?

I thought not. He is not an accountant at all is he?

As for your comment about not letting an accountant run a business ...??? A nice line in random, irrelevant, unsubstantiated mud slinging, but hardly a constructive comment on the housing market.

Getting back on topic, I don't see how MIRAS could possibly help. Yes it might bail a few people out in the short term but that would just serve to artificially prop up house prices (like reducing interest rates in 2005 at the first sign of a wobble) and delay the problem.

The bad news is bubbles burst eventually. Yes some people will get hurt but most of the pain will be felt by the irresponsible borrowers and the irresponsible lenders. Interest rates have been historically low for years, fuelling rising house prices. If people have forgotten this then the economy/society needs this lesson.

Reintroducing MIRAS is not the answer. There is no economic justifcation for giving people tax relief to buy homes. As has been mentioned already, it just leads to house price inflation, not more affordable homes. The lenders need to be more flexible with borrowers struggling to meet repayments and negative equity is not a bad thing if you don't intend to or have to sell your home. The laws of economics suggest it will move into the positive eventually, or else the loan will be paid off with inflated earnings, whichever comes sooner.

The whole point of the Government giving the Bank of England control over interest rates was so that changes made by them would be reflected throughout the economy thus giving the BoE power to control inflation. If lenders are not reflecting those changes in the rates charged to borrowers, then this tool has been blunted, leaving the BoE powerless to use interest rates to control inflation.
It is essential that the Government acts to force changes in interest rates to be passed on, otherwise the power to control the economy has been allowed to pass to companies which have interest in nothing except their own short term profits. This means that nobody will be controlling inflation.
As for repossesions, lenders should not be allowed to reposess a property in advance of the new owner moving in (exactly as with any normal house sale) and should be made responsible for rehousing those who are displaced. Furthermore, they should not be allowed to reposess without a court order and the court should be required to take into account the needs of children to take exams or finish their education before setting a date for eviction to be granted, also the needs of any elderly or disabled people who might be living in the house. The lenders might only be interested in their own profits, but the court should take account of the cost to wider society and to innocent individuals of picking up the tab.
This would go some way to protecting those who have genuinely been unfortunate and have fallen into inforseeable difficulties and would force the lenders to take some responsibility for the consequences of irresponsibe lending in cases where this has been the root cause of the problems.

Why should someone struggling to make mortgage repayments be bailed out if they are in employment?
Either they were very naive when they took on the mortgage or they were stupid enough to think that house prices would always defy gravity.
In either case, like most Brits, they were living beyond their means and now the chickens have come home to roost expect to be bailed out which is not the way of the real world.
A few years of reality should bring them to their senses!

Interesting article. What amazes me is the poor maths skills of so called experts and pundits over the past 6 months, who argue that "the situation is nothing like the early 90's because interests were much higher then, at 15%". Yes, that may be so, but anybody who bought a house in the last five years is paying at least 3 times as much for a house on average. Whats 15% of £100,000? Whats 5% of £300,000? People's repayments are more or less the same (gains in salary are negated by ever higher living costs). Furthermore, because of the high value of mortgages, people are now 3-4 times more sensitive to interest changes than in the 90's - a 0.5% increase now is equivalent to a 1.5% - 2% then. It is a good job King recognised this week that raising interest rates will not curtail the current inflationary trend.

dcardale misses the point that most of the current credit crunch problems have arisen because building societies no longer just lend what others save. They have borrowed in the international capital markets: when those dry: no money to lend: Northern Rock particularly relied on this model so collapsed. If we could go basck to the oild days where lending=saving there would be much less excess credit,less house proce inflation & less boom-bust.

For those that say the re-introduction of MIRAS would be a bad thing, I would disagree. What this would do is give the Government a tool to target financial help directly at the people who need it. i.e. those with the biggest Mortgage's are normally the young with Family's and the most vulnerable when the economy is going through a turbulent time. So now when the Mortgage company's will not pass on the BoE interest rate cuts as over the last few months, the Government could increase the tax allowance (say 10%) on say the first £100000 of the Mortgage interest calculated at BoE rates, this would give a fixed rebate easily calculated. It would only be given to those households with incomes below the 40% tax band so high earning household do no benefit. As for those that comment it would fuel house inflation, I don't think so, as obviously you could only claim this once and would not apply to BTL investors. Also once the economy is stable again it could slowly be reduced to a nominal 5%. What this would do is give the Government a means to help the most vulnerable families when the country goes through these cycles. A roof over your head is a fundamental right, and people being evicted from there homes because they did not have the foresight to see oil prices doubling in 12 months is wrong and just means the local council have to pick up the pieces which of course costs the tax payer in the end anyway.

The effect of MIRAS ias to subsidise existing house values as all it does is to enable the first time buyer to pay more for their new house. Much better to enable Firsttime buyers to afford a house by letting house values fall to a sustainable level. We have all been living in a house price bubble for the last 5 years or so, pricking of this bubble will be painful.

Charles

Why should the Government (aka taxpayer) subsidise, via MIRAS, borrowers who face difficulty when there are insurance products available to cover mortgage repayments in the event of Accident, Sickness and Unemployment? Furthermore, anyone who has borrowed so much money that they can't cope with interest rates 2- 3% higher than 2 years ago really shouldn't be subsidised: the message it sends out is 'borrow what you like and fear no consequence'. Interest rates go up and down and the housing market (like the econonomy) is cyclical.

DizzyLizzy33, I don't think the slowdown in the housing market has occoured because of first time buyers who would buy a property between £250k and £300k were it not for the stamp duty.

I think it is more that they cannot get a mortgage because of tighter lending criteria.
Or have got cold feet about the whole idea.

middleagedspread

"We have an accountant in charge of this country- which strikes me as very odd as i wouldn't let either an accountant or bank manager run a business as they simply don't have the skills necessary"

Conversely, and speaking as an accountant, there are people "running" (I use the term loosely) businesses who do not have the first idea of the responsibilities involved, and because they are always right, blithely ignore advice when it is given, only to suffer the consequences further down the line. They then blame their advisers!

Actually this sounds more like our beloved PM than your post!

There are a lot of very heartless comments here. We are dealing with people's lives, people's homes. Please look at this example story here: http://www.guardian.co.uk/money/2008/jun/20/houseprices.mortgages
The state already does pay for people renting. What is a mortgage, if not a way of renting the property from the bank? Just as, if you die you debts die with you, if they exceed your assets, a borrower should not be persued for a debt that exceeds the value of its security. Ie negative equity cannot exist. Any debt in excess is written off. The banks must take the risk entirely themselves. The state could underwrite this. To avoid fraud, a lender could therefore object to an owner selling a property at less than the outstanding loan.
The answer MUST be to include housing costs in the inflation figures. So increasing interest rates will increase inflation. If house prices fall this will decrease inflation. I pay far more of my salary on mortgage costs than all other expenses combined. Therefore, mortgage payments must be given the highest weighting. I don't care how much pork increases by, I can turn vegetarian.
Also, if control of inflation is so important, then company law must be changed to reflect this. This would mean that, to operate legally, every company would have to accept that the government could introduce a price cap at any time on its product/service. The national interests of the economy must take priority over company profits.

I don't feel very sorry for the repossessed in many cases. Yes, it is very stressful, but it is people borrowing beyond their means that have caused the housing bubble. Taking a mortgage with salary multiples of more than 3 or 4 times is irresponsible as is spending more than 40% of one's take home pay on housing.

I'd love to live in a 'reasonable' flat, I can't even afford a place that has a bathtub, so I don't feel sorry for people who borrowed more than they could afford so that they could live in a 'decent' house. They've been driving up the prices that are keeping the rest of us out of the market.

Please don't make those of us who are sensible and choose to live in small properties that we can afford, subsidise those who made poor choices and bought houses that they couldn't afford.

Ilovedoggies, sorry but you are way off the mark. Yes the story you have posted does highlight the human side of the economics so, lets look at it for a moment.

Maxine cannot afford to pay the interest payments on her mortgage each month. She also has a separate loan which she cannot repay. When taking into account the costs of selling her home (estate agent, solicitor, redemption fee) she finds herself with negative equity (effectively). Bankruptcy is looming.

Whilst this is very sad I fear that in trying to help what you are proposing will make matters worse.

If you seek to penalise lenders what effect do you think this will have? I think you will find that they will tighten their lending criteria and increase the risk-premium. Maxine will never get another fixed rate mortgage. House prices will be forced down (as others struggle). Maxine will need an even bigger lottery win to bail her out!

Whilst it is clear that you wish for this mess to sort itself out with out any pain, I'm afraid the only way we'll learn that housing isn't necessarily a "safe bet" (Maxine’s words not mine) is with said pain.

As for your idea’s on how to curb inflation ........ revolutionary! (as in the Che Guevara sense)

Ilovedoggies
You may think your debts die with you, please be assured they don't, you WILL be pursued beyond the grave, if your estate is capable of paying them....

I am writing this to apologise to all the good accountants that i slurred earlier- sorry.
I have had experience of some pretty dire advise from poor accountants and bank managers in my time, but must learn not to tar all with the same brush.
To all who face financial ruin under this government, and to all of us who face social immobility, take heart, you won't be the only one in your predicament, nor will you be the first.
It just beggars belief that we can be facing a repeat of the 90s and this government are still blaming the other party. Did they learn nothing? I have been informed the Mr Brown studied history, which actually compounds his stupidity.

middleagespread & dizzylizzy:

If 'the Government' caps energy costs, who's going to pay the difference between the capped price and the world market price? Contrary to what most people seem to think, the energy suppliers do not set the price, the price is what customers are willing to pay (and always is, whatever market you look at). The 'windfall' profits the energy suppliers are making now will have to be reinvested to secure future supplies.

I keep reading that a lot of the inflationary pressures are imported. Bear in mind we are bust, with 43% GDP debt and no gold, and interest rates too low, hence a weak pound. Germany has a 7% surplus. If they can do it so should we. They have something put by for a rainy day, and the heavens are about to open.
Still I'm waiting in the wings to buy a house cheap and it's all going the right way.
Expensive loans, poor wage packets, over taxed and a numpty gov't who couldn't run a p!ssup in a brewery.
And a numpty section of society who rushed out and bought houses at twice the price they're really worth to build. I hope the big builders go bust and building is bought back to a local level. More chance of getting back to quality housing.
I've been a keen member of www.housepricecrash.co.uk for some years now, and have learnt a great deal of the economics that effect house prices. It's a great place to learn. I sold my house on the back of this, and now dam'n glad I did.
More massive writedowns to come, 2 British banks to go pop, and a whole host of other stuff on the horizon.
It's going to get very rough. Forget house price percentage predictions. Prices are in meltdown, and will end up with very little value.
This has been a massive transfer of wealth from the poor to the rich, sort of a Robin Hood in reverse, all under the nose of King Midas in Reverse, the one and only, Gordy BoomBust-Brown. I thank you.