Five-year stretch

Five years ago this month I started this blog wondering how I would ever find enough interesting things to say. I needn’t have worried.

Fortunately for me (bad news is always good news for bloggers and journalists) and unfortunately for everyone else, the week before I wrote my first post a small bank called Northern Rock went bust. The consequences of that still dominate my blogging five years later (and hopefully that makes it interesting enough to keep reading).

In the first year, as the credit crunch got worse and worse, and the entire financial system teetered on the brink, it seemed that the housing market would experience a crash as bad if not worse than the one it went through in the 1990s.

The banks were quick to try to pin the blame for the crisis on sub-prime lending in America but their own activities did not stand much scrutiny: 125 per cent mortgages, self-certified mortgages and mortgages handed out at five or six times income were all part of a deregulated splurge in lending.

The main people in the firing line appeared to be people who had bought at the tail end of the boom. If house prices really were over-valued by up to 30 per cent, the crash seemed set to lead to widespread negative equity and soaring repossessions among both home owners and buy-to-let landlords. Most of my blogs from 2007 and 2008 are lost somewhere in the depths of the Inside Housing website but here’s a couple of examples of how bad things looked at the time.

As things turned out, the worst fears were misplaced. The government reacted to the crisis with a series of emergency measures that bailed out bankers, home owners and landlords alike. The cut in interest rates to a record low 0.5 per cent reduced mortgage payments by billions of pounds a year, hundreds of millions more were poured in to mortgage and home owner support schemes and the banks had learned forbearance can be cheaper than eviction. There were still tens of thousands of repossessions but the total was about half that seen in the early 1990s

Housebuilders too teetered on the brink. Stuck with houses they could not sell built on land they had paid too much for, several household names were only kept afloat at the discretion of banks who knew that letting them go bust would increase their own losses. Remarkably, HBOS (now part of Lloyds) had decided that it could go against all previous norms by buying up sizeable stakes in several of its own housebuilding customers but it, and they, were rescued by the taxpayer. Meanwhile the housebuilding industry as a whole benefitted from the first in a series of schemes backed by government cash.

Attention then turned to the next set of potential housing victims: housing associations that could not sell their shared ownership homes. Thanks to prompt action by the Homes and Communities Agency and Tenant Services Authority and extra funding from the government, this crisis too was averted.

In the meantime, though, the credit crunch was feeding through into mortgage lending with a vengeance. Banks that had happily handed out mortgages at 100 per cent loan to value or more in the boom now demanded deposits of up to 25 per cent in the bust.

The picture varied around the country but, especially in London and the South East, would-be first-time buyers faced having to raise a deposit of around a year’s salary before they could get into the market. Transactions plummeted to less than half previous levels but, thanks to low interest rates, there was no collapse in prices. That meant that tens of thousands and, in time, hundreds of thousands of young people were locked out of home ownership and forced to rent.

The opportunities were clear for buy-to-let landlords as rents soared, especially in London. Fergus Wilson, the buy-to-let poster boy, said in 2010 that the sector was ‘absolutely dead and will never return’. But by 2011 lending was booming again. The number of buy-to-let mortgages is now up 45 per cent since the credit crunch.

For a while, the crisis prompted the Labour government to pump more money into affordable housing. However, as 2008 and 2009 gave way to 2010 and the general election drew near it became clear that whichever party won there would be huge cuts in public spending to cut the deficit. All three were careful not to spell out in any detail where the axe would fall and who would be paying the bill for the bail-out of the banks and the housebuilders and landlords and home owners.

So who would pay for it all? The coalition’s first spending review the answer was none of the above. The price would instead be paid by savers as interest rates on their savings dwindled to nothing, by private tenants as rents soared and home ownership became ever more inaccessible,  and by anyone on benefits as a result of welfare reform. And they will carry on paying: many of the decisions taken then and in subsequent budgets have yet to be implemented and the introduction of the bedroom tax and household benefit cap looms every closer in April 2013. Bankers, home owners, buy-to-let landlords and housebuilders are doing very nicely by comparison.

I started this blog five years ago with the vague aim of showing how the whole system is inter-connected and it’s no longer possible to talk of social housing in isolation from other tenures. I did not foresee how big the changes would be in the housing landscape, with home ownership shrinking, private renting set to overtake social renting for the first time in 50 years and the boundary between the two disappearing. Or just how big the gap would become between housing haves and housing have-nots. Or that five years later the fundamental problem would remain that house prices are too high.

So here’s to the start of my sixth year of blogging for Inside Housing, with no sign that the issues that dominated the first five are going away any time soon.