Will the housing crisis in the UK just keep getting worse, or is relief on the horizon for would-be buyers?
House prices in most areas are still on the rise, due in large part to a chronic shortage of inventory, so if you’re a frustrated home seeker you might see little cause to be optimistic. Homeownership may seem particularly elusive to people who have less than perfect credit and fear they cannot qualify for a mortgage, as well as those who have reasonably good credit but can’t seem to find a suitable house in their price range. Even so, the picture may be getting a little brighter for many people, particularly if more of us are willing to reassess our reasons for wanting to be a homeowner in the first place.
When regulations are a two-edged sword
Make no mistake: the process of buying a house is still an obstacle course for many and despite record low interest rates it has become more difficult for many. The difficulty is partially due to increased mortgage regulation in the wake of the financial crisis. According to a white paper released in November 2016 by the Intermediary Mortgage Lenders Association (IMLA), regulations imposed within the past few years have stabilised the market but have done so at the expense of easy accessibility to financing.
The regulations are understandable given the role that unhindered borrowing played in the 2007-2008 financial crisis. Millions of non-prime borrowers who were delighted by the ease with which they could get into a home were devastated a couple of years later when they lost their homes. Regulatory measures such as caps on loan-to-income ratios, the Mortgage Market Review and the revised Basel 3 Accord have made the market more stable but have led to reduced availability of non-prime mortgages compared to a decade ago.
IMLA director Peter Williams noted that the market is still working pretty well for borrowers with large deposits and stable jobs, but not so well for “non-standard” borrowers. Higher capital requirements mean that some borrowers will be faced with steeper prices, and the applications process has also grown longer and more frustrating. The net result is not only exasperating to individuals but is also counterproductive to policymakers’ goals of increasing homeownership.
It may seem like small comfort that the tighter regulations are in place to protect you as well as the lender, but it’s an important point. Owning a house is really not worth getting in over your head to the degree that you can’t afford other basic necessities, much less the occasional luxury. It’s not worth getting into a position where you’re in danger of losing your dream home to foreclosure.
Caveats aside, lenders are very aware that there are potential homebuyers with varying income levels, challenges and needs. Accordingly and despite stricter regulations, the mortgage market is adapting to these variations, and credit challenges won’t necessarily disqualify you from getting a mortgage, particularly if your problems are the result of one-off events such as divorce or illness Excellent credit can give you access to better rates, but credit problems won’t lock you out of the housing market. Research your options and you may be surprised by what is available.
However, qualifying for a mortgage is only one piece of the puzzle. Finding a suitable house within your price range can be another challenge altogether. And here too there may be some relief in sight.
Home or investment? Reassessing priorities
One source of frustration for aspiring and existing homeowners alike is rooted in the way many of us view homeownership. The very fact that we use the metaphor of a ladder, i.e. “property ladder”, is very revealing. It implies that one’s first home is merely a step on a ladder and that one is expected to steadily climb that ladder by periodically selling one’s current house for a handsome profit and upgrading to ever more expensive properties. But because house prices are rising so dramatically– much faster than wages – many people can’t even reach the ladder, much less get a foot on the lowest rung. And many who want to sell their existing home to continue their upward climb may be frustrated because they can’t get an amount anywhere near their asking price.
But there’s an extraordinary experiment in the East End of London that will tie property prices to workers’ wages. An old mental health hospital in Tower Hamlets has been converted into flats, and thanks to the local Community Land Trust (CLT), the families slated to move into the flats will pay only one-third of the market value. When and if they decide to sell, their property’s value will not have gone up in line with the market but rather with wages in the area.
Making this work requires people to consider their houses as homes, not assets, according to Calum Green, co-director of the London CLT. In other words, a house is viewed primarily as a place to live, to put down roots and to have control over one’s environment, rather than merely being a rung on a ladder.
Critics say that CLTs are not the solution to the UK’s housing crisis, because limited land makes the concept difficult to scale up. But others say that CLTs can play a vital role in assuaging the crisis, though it will certainly require a reevaluation of why we aspire to own homes in the first place. Some believe that CLTs could really catch on, and if you’re willing to adjust your own attitude about homeownership, the matter is definitely worth further exploration. Check out the National CLT Network web site for more information.
Whether CLTs are ultimately a game changer or not, there’s little doubt that fluctuations in the housing market will continue, and not always in strictly predictable ways. Barring some completely unforeseen catastrophe, however, there really isn’t any reason to give up on being a homeowner, even if you have fairly serious credit challenges or other financial problems. But you do have to be realistic about your goals.
Slow and steady wins the race
No doubt you’re familiar with the Aesop’s fable of the hare and the tortoise, with its lesson about the value of consistent, determined action. The fable is a good metaphor to describe what it takes to reach any goal, financial or otherwise. We mentioned above that people with one-off events or minor credit challenges may be able to qualify for a mortgage, but what if you have more serious challenges or chronic problems? This doesn’t mean you have to give up on being a homeowner, but what you will need to do is accept that it is going to take you a little longer to become one.
You will need to adopt better money management habits: cut expenditures, find supplemental income sources if necessary, save as much as you can, and build up your credit. No doubt there will be bumps along the way, and if you have a financial emergency at some point, your method of handling it can either represent a step forward or several steps back.
Taking out a loan, for example, may seem like a backward step, especially if you’re already in debt, but it doesn’t have to be if you borrow responsibly. If your credit is bad you may have trouble getting a conventional loan, but there are options available that don’t require a credit check or a long, involved qualification process. You’ll pay a higher interest rate than someone with perfect credit, but that won’t be a problem as long as you only borrow the amount you need and that you can pay back on time. Just remember that the loan is only a temporary fix; it’s not an income source.
In the long term, the key to affordable housing for a greater number of people could rest in a cultural shift, a pivot to a more old-fashioned attitude towards homeownership. In the short term you, as an aspirant homeowner, can shift your own attitudes and actions in ways that will help you make slow and steady progress towards your goal.