Housing bubble is a real threat

WARNING signs that Britain is off on another debt binge are popping up all over the place.

My latest spot is an estate agent window in Streatham, South London. It is a fairly unfashionable area, best described as up-and- coming. Yet prices for a decent two-bedroom flat — nothing fancy — appear to start at around £500,000.

We all know house prices in London are bonkers, so what’s new?

Well, what struck me about that particular price was that it suggests the housing bubble may have little room left to inflate.

For house prices to keep soaring, you need a constant stream of new buyers. In London and the SouthEast, demand has always looked inexorable. But is it?

Amateur landlords, frequent buyers of two-bedroom flats, face a tax attack from the Government. And I keep hearing estate agents moaning that foreign investors are thin on the ground, too.

That just leaves young professionals as the other main buyers of two-bedroom flats. To put down a 10 pc deposit, they will need £50,000 in savings — a sum that will take years to accrue, ruling out most people immediately.

Then they will need a mortgage for the remaining £450,000. A bank will typically lend around four-and-a-half times your income, which means only those with a £100,000 salary qualify.

That eliminates a second swathe because even those buying as a couple will need to be in the top 10 pc of earners in Britain.

I am scratching my head trying to work out how the property market can go any higher if everyone is priced out. This is not just London either. Houses do not get much cheaper as you head outside the M25. It is now common to spend £300,000plus on a first home and most young people resort to teaming up with a partner or friend.

Against that terrifying backdrop, the 100 pc mortgage has risen from the ashes of the financial crisis. It was fairly easy to find one until the 2008 crash forced lenders to tighten the purse strings.

With property prices stalling (the latest Halifax UK index shows they fell 0.8 pc last month), banks have realised that the only way to keep the market moving is to plunge young people into even more debt so they can afford the ridiculous prices. With the new Barclays Springboard Mortgage, a parent puts 10 pc of the price into savings. The child gets a mortgage for the full house price and the parent can withdraw their savings after three years with interest of 2 pc a year.

Brokers say the deal is no more risky to the bank than a mortgage with a 5 pc deposit (which, by the way, is incredibly risky).

On the surface, this seems a super deal for everyone involved, but the catch is that you (and the bank) are taking a gigantic bet that house prices will keep on rising.

What if the naysayers are right about the property bubble? What if huge numbers of potential buyers are on the brink of being priced, or forced, out of the market?

Say the economy stalls and demand dries up in the SouthEast. Could prices fall by 5 pc?

If panic ensues, sellers could be forced to drop prices even further. As buyers wait and watch with glee, could the tailspin wipe 10 pc or even 20 pc off property values in some areas?

If that two-bedroom flat in Streatham falls from £500,000 to £400,000 — a 20 pc decline — it would still seem expensive to me. So a crash in the SouthEast really does not seem that implausible.

That would put 100 pc mortgage holders deeply out of pocket. Going into negative equity will prevent them moving to a more suitable home to start a family — unless the parents who put savings aside are happy to bail them out.

Equally, prices could keep climbing and the doom-mongers might be wrong, as they have been for years now.

I’d be lying if I claimed to know which way the wind will blow but, either way, a 100 pc mortgage looks a big gamble.

Till death us...

STICKING with mortgages, it’s wonderful to hear that Halifax and Nationwide are taking the axe to unfair age restrictions.

Two weeks ago, Money Mail reported that smaller building societies were putting big lenders to shame by allowing customers to borrow into their 80s.

In my Last Word, I called for Halifax, Nationwide and the others to up their game.

And just a few days af t e rwards, Halifax increased its age cap from 75 to 80 and this week Nationwide has pushed its limit to 85. Santander, HSBC, RBS/NatWest and Barclays are still playing catch-up, so there is still some way to go.

Now let’s see the big banks follow this through to its logical conclusion: find a way to let their customers take home loans to the grave.

There is no reason why a bank can’t keep charging just the interest on a loan if it knows the debt can be repaid from a house sale on death.

And if the house is not sold, the bank keeps coining it in from interest payments made by the deceased’s family. To me that looks like a win- win for the customer and the bank.

Do hang up

LIKE many of you, I’ve had enough of BT. It is unacceptable to take weeks on end to fix basic faults with phone and broadband connections.

The issue is that it shouldn’t really be doing the fixing at all. Openreach, which owns the wires and telephone masts that cover our countryside and repairs faults in them, should be a fully independent body.

BT has to please shareholders, shovel out bonuses to its executives and sell sports packages, so it is focusing on profits, which are up 15 pc this year (coincidentally, the same percentage as it is hiking prices in July), and has left Openreach to wither.

Hiring an extra 1,000 engineers and retraining staff will help, but that just papers over the cracks. A telephone and internet connection has become a necessity for many of us as bank branches and Post Offices close and small grocers are usurped by out-oftown supermarkets.

That makes Openreach a vital part of how we live and work. It should be split off, given state funds to roll out super- fast broadband to every home in Britain and ordered by the regulator to fix faults inside five working days.

Now that’s what I would call real progress.