What is your role at the University of York?
As a co-director of the Centre for Housing Policy at the University of York, I undertake research on a wide range of issues involved with housing, for example, one area of particular concern is owner occupation. The research is conducted by the department and is available to policymakers and people interested in housing reform upon which basis they may be able to develop or evaluate policy.
I am also the Joseph Rowntree Foundation professor of housing policy, but I do not work for the foundation ‘ I am employed by the university.
What were the key determining factors behind the last crash in the housing market?
In the 1980s, there was a substantial expansion of home ownership which was brought about in a number of ways. There was the right-to-buy policy ‘ where council tenants were enabled to buy their properties with a discount. And over the period from 1980 to today nearly two million people took advantage of this.
This was also period that saw the de-regulation of the financial markets which removed some of the constraints on mortgage finance, so people who aspired to be homeowners were able to take that step and move into the market.
We also saw some restriction and reduction in the amount of local authority housing available, so there was a kind of push and pull that allowed home ownership to expand.
One of the results of this was that it drew in more people from socio-economic groups whose economic position was less stable and less certain.
So when, at the end of the 1980s, interest rates started to rise in order to deal with the rapid rise in house prices they then had a knock-on effect on the economy and unemployment started to rise. We had people who were not able to manage their mortgage repayments and some of whom eventually lost their property.
How much a change would there have to be in the economy now for the conditions be right for a crash?
Even in the current circumstances with low interest rates, low inflation and a buoyant labour market, nevertheless last year 18,000 households lost their property through the repossession process and about 140,000 to 150,000 thousand people found it difficult to repay their mortgage and were missing three months’ payments. So even in good circumstances homeownership is not entirely risk free.
Nobody knows at what point more people start to find it difficult to pay, but clearly any substantial rise in interest rates and any substantial rise in unemployment would be detrimental to homeowners.
What action has been taken in the last decade to protect homeowners from arrears and repossessions?
There has been a shift in policy towards the provision of a safety net for homeowners. On the one hand, the State safety net has been curtailed, particularly from October 1995 when new mortgagors ‘ if they lose all income through unemployment, sickness or accident ‘ have to wait nine months before receiving any help from the State with their mortgage payments. And of course they only get that help if they qualify, for example, if their partner works less than a certain number of hours, then they would qualify for benefit.
After this safety net was curtailed there was also an encouragement for people to look for private insurance to protect their mortgage, commonly known as mortgage payment protection insurance (MPPI). And both the lenders and the Government have been working hard to try and increase the take-up of this insurance.
Currently about 21%-22% of all mortgage borrowers have that insurance, but the proportion among new borrowers is higher. However, then it is a question of whether enough people will have already taken out MPPI if economic circumstances change and whether the right kind of people have taken out the insurance. MPPI does not cover all the eventualities that give rise to arrears and repossessions. In particular it does not cover relationship breakdowns, or a reduction in income, and it does not cover situations where people have got themselves into difficulties over the purchase of other items.
Are borrowers on target to meet the Government’s target of 55% insured by 2004?
It is rising, but it is rising slowly, and I think the target that was set for 2004 is optimistic. On the other hand, there are other ways that people can cover their mortgage payments, such as critical illness insurance and permanent health insurance. The insurance industry is working hard to develop new products and packages that will try to deal with many of the circumstances borrowers may face.
At the moment, I think the take-up of insurance to deal with mortgage repayments falls short of what is required if there was a change in economic circumstances.
Ben Marquand is deputy editor
l Professor Janet Ford will be speaking about sustainable home ownership at The Mortgage Event in Gatwick on 7 October.