The idea of owning your home is very popular in many countries, not least of which is the UK. In virtually every case, the purchase of a home is likely to be the single greatest expenditure in anybody’s life. The total cost of home ownership is often hidden, but if you factor mortgage fees, interest payments, estate agency fees, stamp duty (a UK tax on properties over a certain value) and legal costs into the picture over and above the purchase price before you even consider maintenance, redecoration or improvement costs, you’d be wise.
Classically, a couple could secure a mortgage which was three and a half times their joint income – according to the Institute for Financial Studies, a typical family with two kids has an annual income of £31000 – roughly £110000. Figures from the UK’s Nationwide Building Society suggest that average house prices across the country have risen by 3.9% in the year to October. According to Nationwide, the cost of the average UK home now stands at £196807; let’s call it £200000. The data suggests that the prospect of purchasing a home by a “typical family” with no equity for a deposit is becoming ever more distant.
Mortgage borrowing has never been cheaper in the UK and a dazzling array of (limited duration) fixed term rates and tracker rates (linked to the Bank of England’s interest rate) are on offer – usually subject to a hefty arrangement fee, of course. However, it is certain that the day when the Bank of England will raise base rates from their historical low of 0.5% is getting closer. When rates do rise, mortgage repayments will become dearer and some home owners will find it increasingly difficult to make ends meet.
The Irish financial crisis, in the aftermath of the Global Financial Crisis, was caused by the bursting of a property bubble which left banks with huge losses on loans on properties worth just a fraction of their book price. Of course, the root cause of the Global Financial Crisis itself was a loss of confidence in the ability of borrowers to make payments on (bundled) sub-prime mortgage obligations which left the financial sector perilously over-exposed to bad debt risk.