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April - May 2008
Are we ‘slaves to the mortgage’?
by Nisha Chopra
There comes a time in ones life when he or she will buy a home to live and create everlasting memories as a family of 2.4 children. Lucky we are, as we live in such a country that can provide us the opportunities to be able to buy a house. However the people who control our ‘thriving’ capitalist system, that is the politicians and the international bankers, are increasingly becoming the sleaze of our economy, monopolising and manipulating the very necessity we need to survive; shelter.
I asked a 37-year-old man, who has a wife and two children, ‘what is the hardest thing you have to undergo in your everyday life?’
“I think the hardest thing to endure for working people who have their own property is the dreaded mortgage. We take this loan out when we purchase our property and for all and good we feel great that we have finally stepped onto this steep ladder.
After a few months when the novelty of having your own house has worn off, the burden of having to pay the loan off becomes a huge strain. When I say strain, I mean the burden of having to keep up with the latest interest rates so that your repayments are not too high, etc.
The banks are ready and waiting for you to fail payment so that they can re-possess. The notion for this is ‘The banks give you an umbrella when you take the loan out but take it away when it starts to rain’.
With the mortgage or ‘Monkey on my back’, I get up every morning knowing that everything and I mean everything really depends on me getting my arse into work. I have to get the money to pay that mortgage. This is why I feel like a slave to the mortgage in our society.”
This man’s woes are sadly the woes of a huge majority of middle class Britain. The uncertainty of the housing market means that along with Britain’s class divides we see another divide between the have and have-nots. Massive mortgages have subsequently led to a new class, of first-time buyers and parents with young families who slave away to be able to afford these back-breaking loans, which could be up to seven times larger than their salaries. Figures from the British Bankers’ Association showed that the average homeowner loan is now at a record-breaking £152,800 - compared with £50,000 in 1994. Having a £150,000 mortgage to pay off at regular monthly repayments of approximately £1,100, or 75 per cent of the take-home pay of a worker on average earnings, means that parents or couples no longer have time to be with their kids and have very little leisure time. They are subsequently forced to pay off their loans by working extremely long hours for little money, leaving them stressed with such a big burden resting on their shoulders.
Under Marxian rhetoric they are the alternative to the exploited workers down at the factories. Instead the bankers’ big pockets exploit these people and they have resultantly become slaves to their mortgages. Could it be that all along Marx’s predictions that only the capital owners - the real big time bosses can only win under capitalism - were right and that anyone underneath will always lose out? Should we just forget the proletariat revolution and instead be worried about a middle class’ revolution of the mortgage slaves. A bit too far fetched I know, but let’s not dismiss the fact that mortgages are transforming our young couples into wage slaves exploited by the bank monkeys.
When did it all start?
It all started following the long-standing decline of house prices after the 7.5 per cent rise in 1989, whereby house prices did not start rising again until 1996. However since 1996 we have seen dramatic increases in house prices in Britain, which achieved, apart from Scotland and Northern Ireland, a ‘double-digit growth’ with East Anglia at 18.1%, the South-West up by 17.5% and greater South-East up 15.8%. The average price of a home bought by a first-time buyer is under £80, 000, although this more than doubles when living in the London bubble, to over £150,000. Nonetheless in the beginning years of the house price boom mortgage rates were much more affordable, along with deposits and the economy under Gordon Brown saw the longest period of sustained growth, economic stability and low inflation in Britain for centuries.
But as the saying goes, ‘what goes up must come down’ as under the current economic climate and property market even the economists are predicting a gloomy prospect for the mortgage slaves. Figures suggest that housing prices are on a downward slope as Kate Barker’s speech in North Staffordshire predicted that ‘house prices are heading for a fall; many homeowners will not be able to get a decent mortgage deal when their fixed-rate term expires, pushing them onto an expensive standard variable rate, with “significant” consequences for them; the credit crisis could make mortgages more expensive for some time, pushing house prices even lower.’*
With interests rates rising as well as inflation the credit squeeze has taken hold of the economy, but not so much by the neck but at this stage by the ear, whispering sour nothings. Nevertheless the banks might be tightening the terms for mortgage loans due to the housing market swooning, but when they do lend money it seems they cannot hand it out fast enough, with major high street banks having raised their dividends. But what did we expect from these insensitive gold-diggers, they were certainly not going to console us at a time when we consumers are beginning to feel the weight of our mortgages as well as overdrafts. The banks instead piled on higher mortgage rates while lenders slashed the amount of credit available, giving the consumer nothing to fall back on but increased mortgage payments.
Consequently consumer spending, especially in the housing market, has also seen a slump in recent years. No wonder you have stricken mortgage lenders like Northern Rock taken into formal public ownership. What’s ironic is the fact that the nationalisation of Northern Rock means that we have to pay the tax for the actual mortgage lender to lend us a mortgage, let alone having to pay for the loan. I say this because I really can’t see how Mr. Brown is going to repay the taxpayer with a possible profit.
What’s more worrying is the threat Northern Rock poses to competition. As a Libertarian of free trade the last thing I want to see is another episode of the BT telecommunication nationalisation, which prevented all private companies to compete with the government owned company. It’s just not cricket! If mortgage lenders are not allowed to compete with the state-owned mortgage lender, the banking industry will definitely not be happy losing potential depositors. Let’s not deny the fact that it would be nice for the bank merchants to have the bitter taste of their own medicine, however we must remember it is in our floundering economy’s best interest to allow for competition, which is vital to creating the right market signals so that the banks and the politicians can reduce inflationary expectations.
If Keynes has taught us anything in the long run we really are dead and so we have no choice but to rely on the banks and politicians to contain the time ticking economic bomb, which seems to have already hit America. As for the mortgage slaves it does not look good, especially for first time buyers, particularly in London, who find it extremely hard to get onto the property ladder, as either way if house prices are low deposits are too high and so too is the risk of instant losses on their purchases. We do however see a little light at the end of the tunnel, as the Labour party have taken steps to reduce the burdens of the dreaded mortgage, introducing plans in 2008 for affordable housing for the younger couple generation. I just hope the plan doesn’t turn into a first houses lottery.
* Heard from a Monetary Policy Committee member. (Reece, 2008)