Millions in mortgage crisis
The thing about capitalism is that it appears to solve problems only to recreate them in a new, more dramatic form. Take housing, for example. Until recently it seemed that everyone could buy a home, watch its value rise and borrow against the property to buy consumer goods to keep the economy moving. Now up to two million households in Britain and a similar number in the United States face a struggle to retain their homes as the economic and financial crisis takes its toll.
The Financial Services Authority (FSA) has expressed concerns that many homeowners with large mortgages could face repossession. Listing the warning signs, the FSA says problem mortgages are those where the loan was taken out for longer than 25 years, where it is worth more than 90% of the home and where the amount borrowed is 3.5 times or greater than income. Over a third of 5.7m mortgages sold between April 2005 and September 2007 fall into one or more of these categories. In other words, two million households are at risk. The alarm bells got louder today as surveyors predicted that 123 homes a day will be repossessed this year.
What the FSA is concerned about is that rising household energy and food bills, together with big credit card and other debts, leaves many homeowners badly prepared for worsening economic conditions. Banks are also increasingly reluctant to pass on interest rate cuts to borrowers because of the credit crunch that has undermined the financial system. When you add in the fact that 1.4m fixed-rate mortgages are due to mature in the next 12 months, you can understand the FSA’s concerns.
Lyndon Nelson, the FSA's head of financial strategy and risk, said: "It is not necessarily the affordability of the mortgage. It is their other debt. Customers with other borrowing in addition to the mortgage are struggling. The other borrowings tip them over the edge," he said. Just as in America, where some 2.2m foreclosure documents - including default notices, auction sale notices and repossession papers - were filed on 1.28m properties during 2007, many recent mortgages were taken out by households who were lured by the promise of easy money but who did not necessarily have the means to pay.
A key role in creating this housing crisis has been played by New Labour. From the start, they cut back on the building of new social housing for affordable rent as they continued the Tory policy of creating a “property-owning democracy”. People like nurses and teachers have been lured into expensive “shared ownership” schemes built by housing associations on the basis that is the key to long-term wealth. In effect, the financing of such schemes amounts to a subsidy from the state to banks in order to compel more people to buy a house or a flat because they are desperate for somewhere to live.
The impending housing crisis is further proof that the market economy is a trap for millions of ordinary people. Unlike bank directors, they do not have the wherewithal to ride out the economic storm. A campaign should begin to halt all repossessions as the first step towards reorganising the financial system altogether. Unrealistic mortgages could be converted into affordable rents or other forms of payment as part of transforming the provision of housing. Land should be owned in common rather than by private developers and social rather than market solutions to the basic right to shelter have to be sorted out so that new households can find somewhere to live. Above all, we must prevent working people from becoming the victims of a policy foisted on them by governments and banks.
AWTW communications editor
30 January 2008