The End Of My Property-Owning Dream

Back in 2000 when I was buying my first (and only) flat, a Japanese friend of mine emailed to say that now I was entering the property owning class that he anticipated that I would not wish to communicate with him being simply an employee, at the time working in a record shop, subsequently when laid off for being too old for that work (at the age of 30) he became a carer.  I know there has always been snobbery in the UK around owning property, but no-one has ever said to me here that I should or should not talk to them because I was or was not an owner of property at the time.  I note this now because finally we have had an offer on the house, probably just in time because I am running out of money to pay the mortgage.  Of course, the offer is less than we paid for the house, by £25,000 (€28,750; US$39,500) and is £15,000 less than the asking price we insisted on (which itself was £15,000 higher than the price the estate agent recommended).  Aside from the slump of 1990-3 the UK, especially southern England, has been used to constantly rising house prices and in general property has been the best investment if you want a decent return on your money.  In fact as I have often noted, house prices have been an obsession in the UK and I can think of no other country where just a simple slowing in the rise of house prices, not even a fall, makes the news broadcasts.  With mass unemployment reappearing and a depression in full bloom, this has already begun coming to an end.

For me, of course, the profitability of owning houses never really turned into a reality.  I owned a flat in London for seven years.  It rose from £80,000 to £130,000 in that time, so I did very well out of it.  The only trouble was, with work taking me away from London on a series of short-term contracts in the Midlands and on the South coast, I was deemed to be running it as a business (I let it out so that I could cover the council tax charged on empty furnished properties) and so I ended up with a £16,000 capital gains tax bill and then, of course, Newham Council, which makes up charges for all kinds of things at a whim, charged me £16,000 as well for work done in the street and to the building which held my flat.  I was compelled to sell the flat far cheaper than the going rate.  It was a two-bedroomed flat but was sold at the price of a one-bedroomed flat, about £20,000 less, partly because the estate agents were in on some deal with buyers (often landlords in the area) and because I was being hassled by my own landlord to move very quickly.  Always remember that however nice estate agents appear to be, they are always playing off the buyers against the sellers.  As a seller, they will never even get you the price that they recommended, expect to lose many £10,000s on that price.  Buyers are also getting very greedy.  When I sold my flat, the buyer, who was being granted constant access to the flat by the estate agent, began demanding various £500 sums for things such as cleaning the flat, something I could get done for less than a tenth of that price.  Clearly informed by the estate agent that I was desperate to move the buyer felt he could twist lots of little bonuses out of me.  The estate agent actually broke the lock to the front door something I had to pay over the odds to have replaced hours before the contracts were exchanged.  I was angered by the buyer's arrogant behaviour and in the end did not pay for the flat to be cleaned; I left the toilet unflushed and a range of food items for the buyer's delectation when he arrived.  It was a small victory, but you can see I was desperate to get something back for all the hassle and lost money.

I suppose I should not complain that I came away with £20,000 profit from the flat.  What was worse was that with the landlord compelling me to move so fast, I had to buy a house (the woman who shared the house with me was sick of renting, but maybe with hindsight we should have done that for a period more) when prices and interest rates were at their highest; more time could have made a huge difference, but I am never lucky that way.  Consequently, of the £20,000 I made on my flat, I will take away about £12,500.  I suppose I should not complain.  I could be facing negative equity meaning that I would still be paying off a loan on a house that I no longer owned.  At least with this deal, I do not get the black mark of repossession against me and all my debts will be cleared.  A lot of people will be far worse off than me.  Of course, I will never own property ever again.  I am now 43 which means that even with the raised retirement age I could not pay off a 25-year mortgage before I retired.

So, after a decade of owning a flat/house, though only a total of four years of actually living in the property I owned, I am back into the rental sector.  Of course, it has worsened since even the bad landlord I experienced back in 2007.  Now you can pay £600 per month to rent a single room in a house.  In addition, you have to go through the humiliation of an extensive selection process.  I am not glamorous, I look peculiar and am told I taught too much.  Like a lot of people looking for a room, I am going to find myself going through fruitless beauty contests.  Landlords/ladies know that people are desperate for housing and so can use this against you.  People renting out property generally think their tenants are slovenly and filthy, no matter how hard they work to keep the place clean.  Rights to be informed of a landlord's inspection are often ignored and you get levied charges like £40 for dust in a drawer or £60 for soap residue in a sink or £400 for the lawn having grown.  I should go into business as one of these cleaners/handypeople who charges such high prices for rectifying these things.

In addition to being once again a tenant, I have also dropped down the social scale even further.  Now, I am a man who has been unemployed for 7 months and will be dependent on housing benefit.  This rules me out from even applying for the bulk of rental property in my area and I am restricted to only those offering 'social housing'.  Housing benefit is falling and will quickly be below the rate necessary for the region in which I live in.  Consequently I will be compelled to move into one of the 'benefit ghettos' that are liable to harden once the new rules of housing benefits really begin to bite.  It seems incredible that twelve months ago that my career seemed to be advancing and I had a house and a stable situation and now that has been stripped of me.  At 43 I am cast on the scrap heap.  My career has halted and I cannot even get manual work because there are too many younger people with the right NVQ to step into those roles.  I suppose pride comes before a fall, but I do feel, that rather than much to do with my efforts, this has been inflicted on me by a government which loves pushing people down the social scale so as to enhance the standing of its people.  I am harangued by the Job Centre to be positive and see some future, but, despite all my efforts, there is no work even in a 250 Km radius, that will take me, I am apparently too much of everything for these employers, too high, too low, too practical, too strategic, too involved, too detached and so on.  Before Christmas I was interviewed for a job and came in as first reserve.  Given unemployment levels it seems unlikely that the winning candidate will turn the post down.  However, I then found out that the funding for the post has not even been approved yet, they were just building up a clutch of potential employees.  I was not even applying for a real job, just simply the opportunity that if a job does appear then I will have a chance to get it.  How much more like disposable batteries can workers become?  'Keep some in the drawer if we need them; chuck those ones out: they're past their use-by date.'

Anyway, I suppose returning to the rental sector will give me issues to post on here, assuming, that is, that I can get internet connection in whatever cramped flat I can get and hear myself think over the noise of screaming neighbours.  What about the woman and nine-year-old boy who have shared my house through the past few years?  Well, with the little money derived from the house sale, they are emigrating to Germany.  With the EU and online sales, small business have a lot more ability to relocate.  Apparently Berlin is desperate for people to rent there and is offering particular breaks.  There are a string of bilingual English-speaking schools there too.  Being an entrepreneur relocating is one thing; an unemployed office manager who does not speak German is something different. 

I am glad that they are getting out of the UK because the future here is going to be incredibly nasty.  As I have noted before people these days often ask: 'why did people not flee from Nazi Germany sooner?' and seem to think that they were naive or foolish.  For my views on this see: http://rooksmoor.blogspot.com/2008/05/respect-difficulties-of-escaping.html  Sitting here in the UK with a new regime, which I trust will never come close to the horrors of Nazi Germany, but certainly seems well on the path to something like the Francoist regime in Spain (1939-75), I can see how hard it is to flee.  You need lots of money and know how you are going to access it in the new country.  You need to be able to speak a foreign language, very well, and to be able to handle all the bureaucracy of the destination country.  You have to try to get some of your belongings out with you.  You have to think about the welfare of your children and how they will be educated when you arrive.  You have to think about what you will do for work.  You have to learn a new set of not only laws, but also customs and expectations.  If you think how challenging a lot of this is, even when you move from town to town in the UK (supplement accent for language in that case), think how many more times it is moving abroad.  I wish I had the ability to go.  Given the damage to UK education that is already beginning, I am glad the boy is getting out.  His mother seems to have paid heed to the warnings I have given about going abroad, see: http://rooksmoor.blogspot.com/2008/09/british-people-dont-be-foolish-in.html and finding a school that was English-speaking, was her first task.  Berlin is very different from the rest of Germany, more international and at the moment welcoming to immigrants from western Europe.  The EU makes things a lot easier for moving around than was the case in the 1930s, but it is still a challenge.

A couple of years ago I wrote on this blog that life does not 'begin at 40' as many have claimed, instead it 'begins to end', see: http://rooksmoor.blogspot.com/2007/09/life-begins-to-end-at-40.html  It is clear now that through bad luck, probably not being assertive enough, and living in particular times, my future is going to be a lot worse than the life I have lived so far.  I have had a brief period owning a house and having a kind of family, the type of lifestyle that the Conservatives are supposed not only to support but to foster.  That period of my life is over.  My one shot at establishing myself in the middle class has gone and now I am an over-aged, over-educated something that will be pushed around by bullying landlords and officials simply because I failed to scrape together enough money to keep a house or said the wrong thing to a question at one of my interviews.

If you have the means to get out of the UK, I advise you to do it now.

Property in the UK 7: The Housing Market Begins to Collapse

I mentioned in the previous posting that this was a bad time to buy a house in the UK and now I am going to outline the reasons behind that. Earlier this year I predicted that house prices in the UK were far outstretching the average income we would soon hit a period when prices would have to fall. Estate agents were unconvinced by this, but I am now being proved correct. In the UK people get nervous when the rate of increase of house prices simply slows so you can imagine how worried they are if they start falling as they have done for the past 3 months. For some reason buying a house is a key status activity that was particularly encouraged during the 1980s to the extent that now some lawyers will not represent you if you are simply a tenant (I have experienced this when trying to employ a solicitor and being turned away not because I could not afford their fees but because I was not an owner-occupier of a house). So everyone tries to buy a house, meaning demand especially in regions where there is work, is very high and house prices just keep rising and rising. This is exacerbated by familes fragmenting, more people living alone and the birth rate of the UK middle class rising for some reason. This year they reached a level that the International Monetary Fund (IMF) felt was 40% over-priced. Of course because so many people invest so much money in their property about 4-5 times more than their counterparts in France, Belgium, Germany, etc., they cannot afford to see the price fall.

Despite all of these factors there is a limit how far house prices can keep rising. People for some reason ignore their pressure on inflation which is wrong as the cost of houses also influences the cost of rents, house insurance and many other house-related factors. To reduce inflationary pressures the Bank of England has used its only economic tool and has repeatedly raised interest rates this year. However, its governor feels inflation is still too high and so rates may have to rise further. For the first time in decades in the UK people have started looking beyond interest rates to manage the economy and there have been murmurs of other credit controls, and though for a couple of months some credit cards were restricted with the retail sector apparently weak, these have been lifted again. The threat of such controls is enough to unsettle consumers. All of this stuff has come far too late. If it had been introduced gradually after the last serious dip in the UK economy in 1993 or even when Labour came to power in 1997 it would all be well-established now, to bring it in now abruptly is just going to be a shock to the system.

So we have a situation of the worst of both worlds. Interest rates are rising making repayment of mortgages harder and yet house prices are dropping which means people cannot rely on selling their house at a hefty profit in order to cover the costs of the money they borrowed on it. You can see why I am personally worried. I have over-paid on my new house, under-sold my old house and have cleared out my savings just at the time when the market is turning to slump. Look forward to a nice blog of a man with negative equity (i.e. owning more on the property than the property is worth in itself). This happened all over the UK in 1990-3 and is clearly going to happen again, I guess in the next 12 months.

The UK's addiction to every rising house prices and the Major, Blair and Brown governments' lack of imagination in terms of economic tools and lack of courage in adopting and applying them is going to condemn the UK to a cycle like this at least every 15 years, maybe more regularly, depending on how far the upcoming slump takes prices down this time. It impinges on the middle class whose wealth and in turn their consumption is based on their property often rather than their incomes (which have been rising far slower) and so a crisis in housing will mean an immediate retail crisis as we may already be seeing as people tighten their belts (even at Christmas when they usually spend the most). It impinges on the working class as well, as those who own property will suffer like their middle class counterparts but also as landlords/ladies either raise rents to cover increased interest payments or sell off unprofitable rental property (as I have experienced) so reducing the availability and raising demand and so rents as well. In addition, those working in the retail and transportation sectors will suffer from retail lay-offs and reduction of business and those in the small-scale building tray, eventually from the decrease of people wanting work on house (though this may be balanced in the short-term by people improving their houses in an attempt to increase prices).

My advice is do not try to buy a house at the moment, wait for prices to fall next year. Pay off as much of your mortgage as you can (most now permit over-payments these days) and tighten up on Christmas gifts, especially those bought on credit. If we batten down now there may be some funds left to benefit from the post-slump recovery when you will be able to snap up reposessed houses (though banks these days tend to sit on them until they can be sold at a set level, often above the prevailing average price in the district - another aspect which has pushed prices upwards, rather than disposing of them cheaply as they did in the 1980s and 1990s). Though I could see the problem on the horizon, because of other human pressures I have been pushed right into the trap and am anticipating that it will be a couple of decades before I return to the level of prosperity I once had; I also anticipate I will not be an owner-occupier for long and that I will lose my house to repossession in about 2 years' time so will be back in an even more cutthroat rental sector very soon.

Property in the UK 6: My Personal Housing Saga Drags On

I started making postings about housing and all the difficulties I have got into with being charged heavy charges by Newham Council for the flat I own in London and how the house I am currently renting is in line to be repossessed. Since the start of July I have been trying to sell the flat and buy a house close to where I now live. Four months have passed and still no progress. Newham Council took over a month to respond to a request from the potential buyer of my flat and the buyer (I am now on to my second as the first one's mortgage lender changed its mind about lending him money) is now trying to squeeze more money out of me, the seller. The first buyer tried this too. I will call this one Mr. A to avoid confusion. Well, after making an offer which was £5000 (€7150; US$10,500) less than the asking price but which I accepted as I was keen to be rid of the flat, Mr. A then started demanding that I totally refitted the bathroom, even though that had only been done two years before. Mr. B, the current buyer knew that the flat came with furniture and in the 3 months since he put in his offer, has not said anything about it, then suddenly this week just as the exchange of contracts seemed ready to happen, he demanded it was all removed and that I pay him £545 (€779; US$1145) to him so that he could do this. What has become apparent is that in East London (where Newham is located) not only do the council try to squeeze as much money out of home owners as they can, but anyone buying your property is going to prevaricate and demand extra bonuses as if you were trading in some Third World market.

Taking four months to sell a house makes it almost impossible to move for work. The only people who benefit are the lawyers who pick up fees on everything. Local authorities also seem eager to tap into the money swilling around in Britain's overheated property market (though for the past two months it has begum to cool, though not as much as the 40% that the International Monetary Fund claims British houses are over-priced by; the average house now costs 9 times the average salary in the UK, meaning most average people cannot afford anywhere big enough for them), that new charges are appearing. Many people in older towns are now being charged for the upkeep of medieval churches in their town no matter whether they are Christian or not. The government finally introduced the HIP (Home Information Pack) after one failed attempt because they had failed to train sufficient people to produce them. You have to buy one of these in order to sell any property with 3 or more bedrooms. They take a month to produce and cost another £3-400. However, many local authorities, are insisting that buyers (in some places sellers) also have to pay for a locally created pack on all properties (my buyer had to get one for my two-bedroomed flat) which again costs hundreds of pounds, the exact charge depending on where the property is. All of these things slow up the UK housing market even more and in fact bump up prices further to cover these costs.

You may say the UK housing market needs to slow down a bit. However, that hampers people trying to move to where work is (something the government usually encourages) and trying to get their children set up well in school (some schools now refuse to take pupils who arrive mid-year and they have to commute back to their old school, hardly beneficial for their education). Thus, soon it will be incredibly difficult to move house in less than half-a-year, something that is reinforced by the fixed 6- and 12-month contracts so many landlords/ladies are insisting on which make the rented sector as inflexible as the purchase one. The lawyers, the landlords and the local authorities all simply gain more money and the average person has to put their life on hold for months. The UK housing market needs adjustment and not simply in terms of prices. I curse the day I ever thought it was a good idea to buy a flat, I should have purchased a caravan instead.

Property in the UK 1: An Obsession

Anyone living outside the UK and lots of us here find it difficult to understand why the British are so obsessed with owning a house. Partly it is because the way you are viewed especially by banks and estate/letting agents is very much shaped by whether you own your house or not. In the 1980s Prime Minister Margaret Thatcher won a lot of support by allowing council tenants to buy the houses they lived in and since then the whole demand for property in the UK has gone mad. Aside from a crash in prices 1990-3 the cost of properties has just kept on rising and so it is a far better investment in the UK than any bank or shares or anything. This has fuelled even more buying and even more price rises as people 'buy to let', i.e. a house they are not going to live in, just to rent out. Even if they do not get tenants the value will have risen about 10% per year depending on what area it is in. The British live primarily in a narrow corridor from London North-West to Liverpool and so demand remains high especially in South East England.

The main difficulty is that salaries have not matched house price rises. The average salary is around £23,000 per year (€33,580 or US$46,000) and yet you can easily pay £189,000 for a 2-bedroomed flat, more in London (where the average salary is admittedly £30,000). 80% of the population earns less than the average salary as it is distorted by the numerous millionaires in the UK. Banks previously would only lend you 3.5 times your salary so an average of £80,500, not nearly enough to get a flat even if you have a partner. So they now have 57 year mortgages and such like and the prices still keep rising.

Now you might ask: what is the problem? Just rent. Well, in the UK in contrast to other countries in Europe, tenants are seen as second class citizens and as I will outline later, that is a licence to get swindled and over-charged by anyone who fancies. In a country where status is so important it is very uncomfortable. I know it comes nowhere near prejudices suffered by millions of people, but it is an element in British society. It also makes the country unresponsive to change. You cannot have the regional shift for example, along the lines that West Germany saw in the 1980s when work moved from the North to the South of the country. Rents were higher in the southern cities, but not 3-4 times higher which is the difference between the cost of the same type of house in southern England compared to northern England, Scotland, Northern Ireland, etc. Ironically, the Conservative Party which told the unemployed to 'get on their bike' and find work, made that almost impossible. In addition the fact that property rises in value so quickly means that places such as the London borough of Ealing, have thousands of empty properties when families are desperate for accommodation. This has been improved by councils charging council tax on empty properties for the last couple of years, but more needs to be done, especially in high demand areas, to follow initiatives of US cities in getting empty property into use. More competition and a fall in house prices will have a knock on effect on rent. In some parts of southern England this has risen 20% in the last 18 months and the Bank of England wonders why it is having problems slowing down inflation despite the falls in grocery and consumer good prices.

Despite the longer mortgages and the better terms there is going to come a day, probably very soon when there are going to be insufficient people who can afford to buy a house and then there will come a slump. As in 1990-3 this will hurt the property owners, but at least it might mean more people will be able to afford somewhere to live and large enough to accommodate them. It might be better in the long run to shift to a situation as in the rest of Europe in which tenants have better rights and are not seen as scum. There has been a good step in this direction this year, but it will probably take the next decade to shift and British attitudes take even longer to change, but change they must. I suppose the bulk of Britons are not interested in an inclusive society and actually relish its divisions, but as you can tell it is something that exercises me, so there.