100% mortgages – is this blast from the past destined for disaster?
Back to the future, it’s 2009 again!
Half the desks in your office are now empty from recently departed colleagues, you have just had the second pay of the quarter and there is absolutely no hope of a bonus this year.
Outside there is fear of the financial chaos spreading beyond the property and investment world with house prices falling for the 6th consecutive month and the unemployed figures looking like a disaster zone.
2009? Wrong! It’s 2017!
Many of us will vividly remember the financial chaos of 2008 – 09 and how hard it hit the property industry. Many of the people who left the industry back then have not returned and, as previously mentioned in my last blog, the long term impact of the lost generation is still being felt today.
Disturbingly it seems that some have decided to conveniently forget the initial contributing factors that started the slide into the abyss, with this week’s news that the 100% mortgage is back on the market.
Whilst the financial crisis and wider recession started in the US, we contributed to the flames substantially with the promotion of such financial products. Whilst this Barclays mortgage isn’t in the same realms of the 125% reckless beast pushed out by Northern Rock in the mid noughties, it is in my opinion a worrying arrival to the market and one that indicates a very sharp decline of business acumen.
Whilst you can argue that there are not many people that will bypass the affordability checks, or that it needs a saving guarantee from another party i.e. bank of mum and dad, it sets us off down a path where other financial institutions will follow and undoubtedly means they start undercutting each other on price and attractiveness of the mortgage.
A more significant thing, in my mind, is that it sets a tone to the wider general public that says that over stretching yourself financially and getting products that you can’t afford is perfectly fine. I am a great believer in risk and the part it plays in allowing you to achieve great things, I set up and run my own company so have a high risk tolerance, the problem is that this product is aimed at the lower end of the market where young people will be looking to utilise it. Dare we use the phrase “sub-prime” again?!
I was in my mid 20’s during the recession and I am not proud to say my finances were a mess, I had 3 credit cards, 2 store cards and 2 large loans. By mid 2009 I had circa £45k worth of unsecured debt that took me 4 years to pay off. Money was easy and free and loans/credit cards were like top trump cards. Whilst this is not true of all people, I feel that the majority will take a larger risk financially if it’s being promoted by a large financial institution like Barclays. The brand and prestige of the business will make the average man or woman on the street feel comfortable with buying this product.
The personal effect of these products wont be felt for some time but the basis for the recession last time was the lack of a moral compass from the financial institutions who were constantly dressing up new products and promoting the upsides rather than the down.
The threat to you and I in this industry is job loss, salary freezes and contraction of work. I remember very clearly during those dark years taking calls from candidates and ex clients who were in tears begging for a job, any job, just so they can keep the wolfs from the door. I for one do not want to go back to those days.
I hope I am wrong but the return of such a product has the hallmarks of an industry that just hasn’t learnt from previous events. Our industry, property and construction, will be the first and hardest hit. We have done so much good work to get it back on an even keel and stable that we don’t need these 100% mortgages.