By Serena Kelly
Do you ever daydream about owning your own home? Until recently, I believed it was achievable. However, my perspective shifted when I uncovered hidden realities surrounding the current UK's political economy, particularly concerning one of the nation’s popular financial tools- the mortgage.
The UK faces a major cost-of-living crisis, compounded by increased house prices and inflation. Recent data from HMLR paints a stark picture of the housing market with a noticeable price surge since June 2020, coinciding with the COVID-19 pandemic. This blog focuses on growing affordability issues when securing a mortgage and how this contributes to broader economic inequality.
A mortgage is a loan provided by a bank or building society allowing you to purchase a property.
Mortgages are secure loans that can boost your credit score, so they’re not as scary as pawnshop loans. Most people take out loans expecting to pay them back, whether it's a mortgage or student loan. A student loan is an investment in education. By borrowing money from the government, students can attain a higher level of education, which can help them secure a well-paying job and pay off their student loans successfully. Some fear student loans despite repayment starting after reaching the earnings threshold.
Mortgages work differently; instantly, you begin paying it back in monthly instalments. Monthly repayments in the UK for an average detached property increased by ‘60.7%’ in 2022, making it less accessible.
Unlike a student loan, the amount of money you can borrow for a mortgage is based on your income. ‘54%’ of people in a 2019 YouGov survey said they needed parental financial help to afford their homes. This empirical evidence highlights the growing difficulty of purchasing a home without ‘family leverage’. This is because the average house price in the UK is now £242,000 more than the average disposable income one has. This means it is harder than ever for people without ‘family leverage’ to climb the housing ladder.
Additionally, the UK is grappling with a significant housing shortage. The ‘backlog of 4.3 million homes’ is a staggering figure that underscores the magnitude of the problem. Many struggle to find a suitable home, regardless of their financial situation. Unfortunately, the government's targets to close this deficit are unattainable and would require ‘at least half a century’ to achieve.
The correlation between homeownership and wealth generation is well-documented, with evidence supporting claims that owning a home facilitates wealth accumulation. Homeowners can effectively manage their finances and generate income through rising house prices and using mortgage payments as investment strategies. Conversely, renting has traditionally been a short-term solution with no long-term financial benefits. The UK government's role in the financialisation of homes has made homeownership increasingly unattainable, worsening economic inequality.
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