Weak British economy cripples mortgage holders foreclosures pile up As in U.S., excesses of '80s haunt public


LONDON -- Pssst! Wanna buy a house? Cheap?

It hasn't reached the point where agents are hustling real estate in alleys, but housing has become Britain's all-absorbing crisis.

After meetings with the country's largest banks and mortgage lenders, the government last week unveiled an emergency program to stem the alarming and unprecedented number of foreclosures throughout the nation.

Those foreclosures threaten the economy, already in a deep slump, and the lending industry, which many believe is dangerously overexposed.

Also vulnerable is the Tory party's political future, as well as Prime Minister John Major's. The housing crisis is the latest threat to his party's re-election sometime this spring, when a general election is expected.

Clearly it's a serious problem. About 800,000 mortgage holders in Britain are in arrears, according to bank estimates. That's 10 percent of all those who hold mortgages.

Foreclosures last year ran to over 40,000 nationally. This year the number is expected to pass 85,000. And, if the rescue package fails, next year could see 160,000 families thrown out of their homes.

One of the government's remedies would allow people receiving government assistance to have part of their mortgage payments sent directly to the mortgage holder. Banks complain that many people use their assistance money for other purposes.

Another proposal would help those who have had a sudden loss of income, through unemployment, loss of overtime or pay cuts. These people, unable to make their payments and facing foreclosure, would have their houses bought by housing associations or by the lending bank itself. They would thus be converted from owners to renters, but at least would be able to stay in their homes.

Rent payments would be easier to meet because under British welfare regulations renters are eligible for a housing benefit while homeowners are not.

The mortgage crisis grows from seeds planted during the 1980s when, encouraged by Margaret Thatcher's government, mortgage banks lent liberally and to large numbers of people, some not the best risks.

Mrs. Thatcher wanted to move as many people as she could out of public housing into their own homes. It fit with her ideology, to promote private ownership and limit government activity. It also lightened the government's responsibility to provide rental housing to the poor.

A. John Bird, editor of the Big Issue, a newspaper published and sold to benefit Britain's homeless, recalled that "in England [during the 1980s] there was almost a conspiracy between the government and the lending institutions, the banks and other agencies, to encourage people to take on houses and get very large mortgages. Sometimes 80, 90, even a hundred percent."

Basically, three kinds of people took advantage of the easy money flowing in the Eighties. First were the speculators, people with ready cash who gobbled up properties, expecting the housing market to rise and make them rich. For some, it worked. Today, though, many are stuck with houses they can't meet the payments on.

More prudent middle-class people saw an opportunity -- not available to their parents -- to own their own homes. Among them were a lot of skilled and semi-skilled industrial and service workers of the sort who used to vote for the Labor Party, and who, once they became property owners, began to lean toward the Conservatives.

And there were the people living on the margin, in public housing. Offered the chance to purchase the house or apartment they were living in, some of them grabbed at it.

But a recession has been nibbling at Britain's economy over the past three years. This year it has begun to bite, deep and hard.

Unemployment has been rising slowly but steadily over the past two years, from 5.7 percent at the beginning of 1990 to 8.8 percent this October, the highest in almost four years.

People out of work, or on reduced wages, could not meet payments on their houses. And since they were not renters, they received no welfare assistance in that area.

The banks began to swoop, grabbing back thousands upon thousands of properties. Now, it seems this haste to foreclose was not the best policy, either in terms of business or social responsibility. Today, about a half-million empty houses are on the market. Their value is declining -- as is the value of many other occupied houses.

"We have large numbers of properties for sale, and no one looking to buy. That's the problem in a nutshell," said Richard Gordon-Steward, an executive for a major real estate company. "And with people losing their jobs in increasing numbers that position can only get worse."

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