It's your moral duty to buy property

The housing market may have helped cause the financial crisis, but according to the CBI it also holds the key to the recovery.
Much of the debate about the continued economic malaise in the UK has focused on growth, or rather, the lack of it. Indeed, the International Monetary Fund has now cuts its growth forecast for the UK for 2011 to 1.1%, from its earlier prediction of 1.5%, and pinpointed the nation as one of three large, developed economies at risk of a double-dip recession.
So how do we get things moving again? Everyone seems to have an answer, with ideas put forward including cutting business taxes and reversing the VAT rise implemented at the turn of the year.
One interesting suggestion though comes from the Confederation of British Industry (CBI), which has pinpointed the housing market as the key.
Buy a house, boost the economy!
In a speech last week, the director general of the CBI, John Cridland, suggested that the Chancellor needs to consider how to boost activity in the housing market and construction sector, arguing it could be a major ‘game change’ for growth.
Cridland called for a ‘revitalised’ mortgage indemnity guarantee to get banks lending at high loan-to-values again. He also suggested the Government start allowing potential first-time buyers to access the cash they have locked up in a pension through a loan-back scheme, to help struggling househunters to meet the costs of buying their first home.
Other ideas included more shared ownership, and changes to the planning laws to get the construction of new homes up and running again.
Clearly, the CBI is of the opinion that if you buy a house, you will boost the economy.
So is it really your moral duty to go out and buy property?
Making things easier for buyers
I don’t think anyone would argue that making things easier for young people to buy a property is an undesirable thing, it's how to go about doing it that is open to debate.
There are some lovemoney.com readers (and writers for that matter) who argue that the important thing is that house prices fall significantly, so that they are no longer four, five or even six times the average person’s income.
Personally, I’m just not convinced that will happen anytime soon, so at least building new properties to meet the current growing demand would help stem any house price growth. If we don’t address the current property shortage, there are suggestions house prices may reach £200,000 in just a couple of years.
As for lending to borrowers with only a small deposit, the situation is far better now than it was a couple of years ago. Check out this table from Moneyfacts which demonstrates the improved level of choice such borrowers face today. It’s not perfect, but it’s a start.
Date |
Total Number of Mortgages |
Number 95% LTV |
Number 90% LTV |
Number 85% LTV |
Today |
3,035 |
44 |
281 |
568 |
April 2009 |
1,209 |
3 |
72 |
182 |
February 2008 |
3,250 |
611 |
647 |
132 |
Get a loan, to help you get another loan!
However, the pension loan-back idea strikes me as a touch barmy. For starters, the CBI may not have noticed but there is a pension crisis already in the UK, with younger people not saving enough in the first place. So chances are they don’t have much to ‘borrow’ from their pension pot anyway.
But I also have a problem with the idea of taking out a loan – albeit from yourself – in order to get hold of another loan, in the form of a mortgage. So not only will they have to budget for their mortgage repayments each month, but also paying back the money they borrowed from their pension pot, as well as keeping up future pension contributions to ensure they actually retire with some money set aside.
Sorry, but I’m not a fan.
Growth built on a bubble
But the real issue I have with all this is pointing the finger at the housing market as the answer to our economic prayers. If the economy is to turn around for the long term, surely we want something more sustainable than a vibrant housing market and Kirstie and Phil all over our TV screens to be the catalyst?
Cridland is right that the Government needs to do something to boost growth. But that means encouraging new business, getting us manufacturing actual things rather than relying on the City and the financial sector, and ensuring that workers have a few quid in their pocket each month to spend.
What it doesn’t mean is huffing and puffing until we have a 2007-esque housing bubble again.
Buying for the right reasons
That said, if you can afford it and are buying for the right reasons – a property you want to live in for the long term, rather just an investment - the fact that some vendors are cutting their asking prices means now may be a decent time to take the property plunge.
Check out the great deals below, or have a chat with one of our fee-free mortgage team over at our mortgage centre.
20 terrific mortgages
Lender |
Term |
Interest rate |
Maximum loan-to-value |
Fee |
Two-year fixed rate |
2.34% |
75% |
£1,995 |
|
Two-year fixed rate |
3.09% |
80% |
£1,000 |
|
Two-year fixed rate |
3.19% |
80% |
£995 |
|
Two-year fixed rate |
3.24% |
85% |
£995 |
|
Three-year fixed rate |
2.79% |
65% |
£1,499 |
|
Three-year fixed rate |
2.79% |
75% |
£995 |
|
Three-year fixed rate |
3.59% |
80% |
£1,198 |
|
Five-year fixed rate |
3.29% |
70% |
£1,495 |
|
Five-year fixed rate |
3.39% |
75% |
£995 |
|
Five-year fixed rate |
4.03% |
80% |
£999 |
|
Two-year tracker |
1.95% (tracks base rate + 1.49%) |
60% |
£1,995 |
|
Two-year stepped tracker |
1.99% (tracks base rate + 1.49%) in year one, 2.99% (tracks base rate + 2.49%) in year two |
70% |
£595 |
|
Two-year tracker |
2.19% (tracks base rate + 1.69%) |
75% |
£995 |
|
Two-year offset tracker |
2.75% (tracks base rate + 2.25%) |
80% |
£645 |
|
Two-year tracker |
2.99% (tracks base rate + 2.49%) |
85% |
£995 |
|
Lifetime tracker |
2.49% (tracks base rate + 1.99%) |
60% |
£0 |
|
Lifetime tracker |
2.59% (tracks base rate + 2.09%) |
65% |
£499 |
|
Lifetime tracker |
2.85% (tracks base rate + 2.35%) |
75% |
£945 |
|
Lifetime tracker |
2.99% (tracks base rate + 2.49%) |
80% |
£599 |
|
Lifetime tracker |
3.99% (tracks base rate + 3.49%) |
85% |
£199 |
More: Five cheap ways to fund home improvements | Buy-to-let is back and it’s meaner than ever
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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Comments
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If only I could buy I would and often.
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The CBI are in the pay of developers, they would say that wouldn't they! This just shows why we are in the mess we are. Building houses is not growth. It transfers money and buildsu debt but we need growth that brings in foreign currency and creates wealth. Unless people buy the houses with foreign currency it is only providing a few building jobs and giving fat bonuses to developers, teh last peopel to assist . I woudl advice people to stay out of teh housing market to force prices down. That is the only way to show a commodity to to expensive. It is difficult with food of course as you must have some, but many commodities you leave alone until the price is right.
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Why do the CBI think encouraging more debt fuelled property speculation is good for the long term prospects of the country? What we need is more exporting to recover the trade deficit that is never talked about. Only when we start earning our money by selling value products to the rest of the world will we rebuild the UK PLC balance sheets. Buying properties is merely 'churning' money. Yes it will provide trade for the construction sector but this is yet more 'churning' and simply transfers money around within the country. Perhaps I am naive but I thought the CBI were representatives of Industry, not Estate Agents, Property Developers and other property spivs. I have been running and trying to rebuild a small high tech manufacturing company since 2001, it is nigh on impossible and I have all but given up. As moreteavicar has so eloquently posted, we no longer value engineers or technologists in this country and view any business that makes things as boring, dirty or below our standards. Certainly no one will invest for the long term and banks always turn their backs in favour of more thrilling investments ie. Property and associated instruments. We struggled to get an overdraft of more than £3000 for a business turning over £250-300k and making profits. When the Confederation of British INDUSTRY have forgotten what the last word in their title means I think the lunatics are most definitely running the asylum! Why is it that in this 'global crisis' nations like Germany, France, Canada to name a few are still performing well economically? The answer is that they still value making products for others to buy and are proud to do so, the French are particularly loyal to their own products whereas we have no such pride and would rather buy from anyone else as long as their is a margin involved. The only reason I (and most engineers and technologist) continue doing what we do is because we love our vocation and are motivated to design, build, solve problems and create - it is certainly not for the money, I have lived on minimum wage for most of the last 10 years. Most of our company's profits go on, taxation, rent, rates, insurances, bank charges, landlords maintenance charges, health and safety directive compliance, WEEE directive compliance, Employment directive compliance, ROHS directive compliance. Where are the CBI in defending and supporting manufacturers? I do hope there is a 'sea change' in this country as the current myopic economic policy will condemn the next generations to poverty - unless they belong to the banking or political elite of course. As for my electronics company, unless things improve I will transfer my skills and those of my company to Canada most probably.
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01 November 2011