It would be easy to think that the cost of living crisis is a thing of the past. That, indeed, the good times are back as inflation has fallen, growth is up and wages continue to rise (though not above inflation in most cases). So, should we celebrate?

Put the Prosecco on hold for now. Life is not quite as simple as government ministers and what counts for journalists these days would have you believe. Most people only have to consider their own finances to realise that all in the economic garden is not rosy.

The real indicator that things are not going to plan on the economy is that interest rates remain high. That might sound a boring topic for a socialist but what it means is that borrowing is higher and that affects almost everybody.

If you have a mortgage, a percentage point rise in the rate can be the difference between being able to pay your mortgage and going into arrears. We can talk about whether home ownership in the sense that now dominates life in the UK is the best way of putting a roof over people’s heads but, sadly, such discussions do nothing to alleviate the misery that many people are being put through, which is a result of nothing they have done.

According to the 2021 Census almost two-thirds of households owned the accommodation they lived in. This is about average across Europe. Though that average hides a great disparity, from 42% home ownership in Switzerland and 48% in Germany to up to 76% in Spain and 93% in Romania. In the USA home ownership is also around two-thirds. Rather surprisingly in Russia and China home ownership is around 90%. The notion of a property owning democracy is, it would appear, well established, even if the concept of democracy might seem less so.

Around half of all ‘homeowners’ in the UK don’t really own their property, as they are still paying for it. The majority of people (92.3%) with mortgages are on a repayment loan, which means you pay off a portion of the cost of the house, plus the loan interest each month. Many of these will have taken out a fixed rate loan and, given that the average fixed rate lasts for between 2-5 years, anybody who took out a fixed rate from 2019 onwards (about 1.27 million people) is about to have a real shock to their system. 

In 2019 the average mortgage rate was 2.98% ,with fixed rates slightly lower than that at 2.23%. By 2021 average mortgage rates were 2.3% with fixed rates at an average of 2%. The best fixed rates available now are around 5% for 2-3 years, moving on to a variable rate 4% above the base rate (and who knows what the base rate will be in 2 or 3 years’ time).

Now all these figures may be confusing. But in reality they tell a very simple story. Between 2019 and 2021 people were taking out loans at very low interest rates, totally unaware that a combination of Brexit, Covid, sheer government incompetence and an economic system entering a periodic decline would mean that their carefully balanced finances were about to fall off a cliff.

We can be censorious toward those who take out loans which require unlikely financial conditions to be met, but in reality that is the system we are all in. The ability to own your own home and to pay off the loans required to pay for it is not predicated upon your personal financial genius, but is purely to do with luck. The simple fact is, as I have pointed out previously, all of us are one bad decision away from financial ruin, and that decision is not one we even get to make ourselves.

At the end of June 2023 there were 90,700 households in arrears of more than 2.5%, with 1,100 repossessions in the second quarter. The government, being absolutely soulless and caring not a jot for the troubles of ordinary folk who have failed to inherit properties, tends to regard the fact that repossessions not being at the level of 2008 is something to be celebrated. 

Surely, even one family losing their home is one too many? A system that can see 1,100 families losing their home over a three-month period and regard that as ‘acceptable’ is no system at all. It is, as the entire economic system is at root, a dogfight. Unlike a dogfight, however, this system is entirely loaded in favour of those who have wealth.

But there is another aspect to all this that may well pass by those born between 1946 and 1966 (so-called baby boomers). For many people of this generation (including me) their parents were the first in their families to own a home. It is possible that, as family sizes have fallen, the children of the baby boomer generation will inherit a house on the death of their parents. It is worth us noting that wealth moves between the generations, especially in the form of property. In my case I have to share the proceeds of my family’s modest former council home with three siblings. None of us will be wealthy as a result. 

A corollary of this is that for many Generation Z (born since 1996) the prospect of inheriting their parents’ wealth is affecting their attitudes to pensions. In 2011 research showed that younger workers were four times less likely to be paying into a private pension scheme than older workers. Some of the reasons were investigated by research conducted by the University of Sheffield. They found that younger workers had “an information deficit concerning pensions, how they operate and where to seek appropriate advice; a lack of trust in pension schemes and their envisaged returns; a tendency to be myopic in relation to saving; and inability to afford to pay contributions at this stage of the life course.” 

For many younger people the fact that retirement seems like a very distant event, and the fact that they are at the lowest point of their earning potential, combine to discourage them from taking decisions that are clearly in their best interest. However, many have now developed an expectation that pensions might not even be necessary. I remember a friend of mine telling me when we were in our twenties,“If we still need pensions when I retire then things have gone badly wrong”. I haven’t seen him lately, but I am betting that, as he got older and the anticipated revolution had not appeared, he ended up in a pension scheme of one sort or another.

So being blasé about the future is certainly not a recent development. But we now have young people saying that, instead of investing in a pension fund, they are going to rely on property to fund their retirement. In many cases that will be a result of inheriting property, in others an unrealistic expectation of how much it is possible to make from downsizing. Lisa Meller, of Personal Finance Movement, says, “As is well known, a lot of baby boomers sit on property wealth as a result of the house price increases over their lifetimes, which will be passed down the generations. So there is an air of opportunity around property in the younger generations having seen the house price increases for their parents and grandparents, despite the barriers younger generations now face when entering the property market.”

The whole system is chaotic. House prices, mortgage rates and even the availability of suitable accommodation is dictated by the flux of the market. 

Perhaps we need to have a different conversation altogether. The point of property ownership is to provide people with accommodation. There is no good reason why you have to own that accommodation. That is not to say, however, that the current system of renting offers an immediate template for change. It will be difficult to wean people off the idea that property ownership represents some kind of personal triumph. And it would not be appropriate to simply remove people from family homes.

That said, we need a radical reimagining of the way in which we look after one another. We need to regard certain things – food, accommodation, healthcare, work – as a social good rather than a private commodity. In the meantime, if you are in your twenties and working, don’t bypass that pension scheme. You might regret it when you are older and we are still waiting for the revolution to sort everything out for us.

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