House prices: the 10 most recession-proof counties in the UK

With its three bedrooms, indoor pool, log cabin and conservatory, Jane and Andy Pow’s detached new-build house near Doncaster would seem luxurious to most people. The Pows are not the kind of people you’d expect to be in financial difficulty. He is a former head teacher; she is a former deputy head. Jane Pow is used to bringing home £5,000 a month as an educational consultant. Andy Pow is on a head teacher’s pension. With five children between them and two cars, “we lived as you’d expect two reasonably affluent people to live”, as Jane Pow puts it, adding that they have a busy social life playing in a Celtic rock band.

After Andy, 61, became unemployed in 1995 they thought they could deal with hardship.

“I’m very sensible,” says Jane, 54. “My view is that in life things happen, and you have to manage them.” Having lived in their house since 1991, the Pows changed their mortgage in the early 2000s, lured by a deal from a smaller lender. For a few years it worked. Pow became an educational consultant, but the company she worked for fell into difficulties. So she set up as a sole trader last year, and wrote to the mortgage company to request three months’ suspension from their £1,326-a-month mortgage while she became established. “They said they didn’t do breaks. They suggested I borrowed it from relatives.” Unable to pay, but confident that she would be able to do so once her work took off, Pow took her “mortgage holiday” anyway.

A repossession order came through. Between October and December, Pow made 40 attempts to get through to her lender on the telephone.

“I was constantly making phone calls that were never answered.” In the event, she did ask her 24-year-old son if she could borrow the money.He couldn’t help. “At this time I thought, ‘I’m a strong person. And I’m finding out how strong I am.’ I’ve been trying to protect my husband from the stress, as he’s had heart problems.”

On December 28, Pow got the court notice. The judge, clearly sympathetic, couldn’t overturn the order but he did make the lender reduce the arrears.

Pow represented herself, having spoken to the Citizens Advice Bureau (CAB) and Shelter. “We didn’t qualify for free legal advice. I’m not poor enough, apparently.” Many people wouldn’t want to talk about repossession, but the Pows don’t mind. “We have no interest in the so-called ‘stigma’ of it,” says Jane Pow. “We don’t consider ourselves at fault.” But she admits to being bitter. “I’ve worked really hard all my life and haven’t asked anyone for anything, but what sort of recourse did I have?” she asks. “None.”

The consensus has it that the housing boom is over. Most areas in England have registered price falls, with homes in Greater London the steepest of all. Halifax, which does a monthly survey of house prices, says that values fell across the UK by 2.5% in March; the housing analyst Hometrack reckons that values were down by 0.9% in April, the seventh consecutive month of falls. Recently, in a reversal of the situation a few years ago, it was reported that UK properties were losing £45 a day. “When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

Downturn, correction, bust: whatever the name, the present situation may even be causing many Britons to question the very structure of homeownership in the UK. “Personally speaking, I can’t wait to be free,” says Jane Pow. Yet just a year ago, people were still risking all to get their feet on the property ladder.

It is, one could argue, the unravelling of a decades-old dream. It was the former prime minister Margaret Thatcher – following Harold Macmillan’s cue in the 1950s – who crystallised the notion of a “property-owning democracy”, particularly with the “right to buy” sales of local-authority homes. Before the first world war, the percentage of homeowners had been 10%, more or less. Since then owner-occupation has soared: about 49% in 1971, it is now 71%. “The Thatcher era completed the normalisation of homeownership,” says Stevens. “It finally ceased to be just for the middle classes.”

With that came the making of a national obsession: property. “It’s still controversial among academics, but it’s generally accepted that while the UK hasn’t got the highest rate of homeownership in Europe [Italy has], the English-speaking countries have led the way in promoting homeownership,” says Stevens, who traces a path back to the building societies of the 19th century. “There was an advert for the Halifax in the 1890s showing two scenes,” he says. “One was a lovely country cottage, the other a hovel with holes in the roof, to point out what could happen if you didn’t buy a home.” Homeownership became a mark of thrift, self-reliance, independence and belonging.

To the British, the home has become even more: a nest, an investment, a pension, a source of capital; even an adventure in taste and self-expression, as well as a badge of fulfilment.

Then, when we die, the home – in theory at least – becomes a legacy. But equally, homeownership might help to decrease personal flexibility and increase vulnerability to financial stresses, such as maintenance costs and interest-rate rises. Plus – and some argue that we are shortly to face this scenario – a mortgage does not bode well when mass unemployment looms, or when a home costs more than it is worth. Such cracks are starting to appear in the edifice of homeowning Britain.

The language of repossession is back. The term “sub-prime”, unknown a year ago, has entered daily usage. The next step could be a revival of negative equity, where payments service a mortgage that is higher than a property’s assistance, and the government made an assumption that people would take out mortgage protection insurance, which the vast majority didn’t. Thus it is not penury but overextension that is fuelling the current repossession crisis. “In the early 1990s, people were battered by unemployment and interest rates,” says McAteer. “Now they’re vulnerable to interest-rate rises. Every 0.5% means that mortgages can go up by tens and even hundreds of pounds. The level of debt dependent on income is higher now than in the late 1980s and early 1990s.” With house prices at record levels, these fluctuations have potentially more extreme consequences than in the late 1980s. And, adds McAteer: “One million people pay mortgages with credit cards. If the economy goes down it’ll get really messy.”

Stevens agrees: “I rather fear we might get a higher level of mortgage repossessions this time.”

Some people, says McAteer, allow themselves to be repossessed in a “game’s up” spirit. But many turn to CAB or Shelter, the homeless charity, which saw 80,000 people concerned about repossession last year, 10,000 more than 2006. “They come to us and CAB because they can’t get legal aid as they are ‘homeowners’,” says Shelter’s chief executive, Adam Sampson. “It’s not as bad as the early 1990s, but the trajectory is steeply upwards. There’s a problem coming in the next 12 to 24 months.”

They deserve it, some might say. But today’s poor, as the Rowntree Trust has pointed out, are as likely to be homeowners as council tenants, and there isn’t much solace for them. “There isn’t an adequate safety net,” says Stevens, adding that it’s a function of our liberal market. “For instance, it’s relatively easy to repossess a house in the UK, and it’s difficult in Italy. But it’s also difficult to get a mortgage in Italy.”

Recovery may be harder from this downturn. And though lenders and courts generally want to help people facing repossession, there is a rogue roster of mortgage providers – the UK’s own sub-prime sector – that appears to be profiting from distress. “Lenders now know that if they repossess houses, they don’t recoup the full cost,” says Sampson. “It makes good financial sense to keep people in their houses, and that’s what responsible lenders do. But there are sub-prime lenders who move to repossession very quickly. Perhaps they were only lending to risky borrowers in the hope of capital gains.”

Stevens, too, has observed this: “We’re seeing repossessions rising more rapidly than arrears.”

What of the buyers? Do they not share some responsibility for their distress? Well, yes, although their drive to purchase property has often been for the most understandable of reasons. “In the last few years, people have borrowed against a second job, overtime or part-time work just to get on the housing ladder,” says Sampson. “But often they lost sight of prudence and the principle of affordability. If you’re desperate to get on board, it’s difficult to make a rational decision.” Then, at the financial margins, minor debts turn into secondary charges, and the debt, in Sampson’s word, becomes “aggregated”.

Still, there are few signs that the national property obsession is abating. If anything, the repossession crisis appears to have already turned into an opportunity. At an auction in Kensington town hall, the room is so packed that there aren’t enough chairs to seat the potential buyers. The sale is full of repossessions, including new-builds and former housing-association properties in London going for £100,000-200,000 – a price bracket that one might be mistaken for thinking was part of the capital’s history. The Royal Institution of Chartered Surveyors acknowledges a rise in repossessed residential properties offered at auction that now attract ordinary buyers seeking bargains. And the giddy atmosphere in Kensington attests to the buyers’ hope that they will find the downturn’s property pickings. Edward Parry of Moneysorter, a personal-finance website, calls it the “vulture syndrome”. “It’s the upside of the downturn: first-time buyers can pick up cheaper properties.”

A lot of repossessions are 1990s new-builds that were mostly sold to buy-to-let investors. The BTLs are facing serious problems, with typical two-bedroom new-build blocks in inauspicious locations the first to fall. Albion Mill in Ancoats, Manchester, is one such block that has seen several flats repossessed and sold, having plummeted in value. A flat in a new-build block in Ipswich went for £268,000 in 2006, but just £133,000 at a recent auction.

David Leary of Essential Information Group, a property-auction agency, has seen “huge drops” in price. “They were fuelled by companies like Inside Track [which went bust last month] offering buyers a guaranteed rental income and, next thing they know, the price has dropped.”

So the BTL brigade is well represented at auctions. “Everybody wanted to be a property developer in the boom, and the experienced people will still make it work,” says Leary. And the inexperienced? “Not any more.”

There’s another industry cashing in on the repossession crisis: the “sell and rent back” worth. If prices do fall by 20% – as the personal-finance website The Motley Fool predicts – then this will become a reality. Meanwhile, the trickle of repossessions that began in 2005 is becoming a flood, and homeownership, rather than being a source of comfort and wealth, is now looking like a bringer of regret and uncertainty. The Council of Mortgage Lenders (CML) expects the number of repossessions to rise in 2008 to 45,000. In 2006 it was 17,000; last year, 27,100.

Ray Boulger of the online mortgage broker Charcol, one of the busiest housing pundits in the country, currently proposes that the latest figure could be about 50,000. Record house prices, the UK consumers’ £1 trillion-plus debt, financial insecurity, and the fact that people have borrowed higher proportions of their income – all the portents are in place for a spate of repossessions moving towards the scale of the ravages of the early 1990s, when more than 75,000 properties were repossessed and interest rates soared to 15%. Between 1990 and the end of the recession in 1995, around 345,000 homes had been repossessed.

At present the repossession figures are lower than in the 1990s. Yet several factors are causing anguish. One is what mortgage professionals call the “reset” issue: when a fixed-rate mortgage finishes and becomes variable, the monthly rate leaps. The CML estimates that about 1.4m mortgages will reset this year, bringing vertiginous rises in outgoings and severe “repayment shock”, as it is known.

More insidiously, life events also precipitate current repossessions, making those who thought they could deal with substantial loans struggle. Death, divorce, job loss, illness – with the average mortgage at £150,000, more than double the 1997 average of £60,000, the error margin becomes dangerously thin. It doesn’t take much for a payment to be missed and the letters with red type to start arriving.

The situation is being closely watched by Mick McAteer, once of Which? and now with the economic think-tank the Financial Inclusion Centre. He blames the ease with which it became possible to find a mortgage, especially “self-certified” mortgages where applicants frequently exaggerated their incomes. Inevitably, the “property feeding frenzy” would come back to haunt the house-buying public, holding those who wanted to move in a cruel stalemate.

“It’s basic psychology,” says Stevens. “People want to spend £100,000 if they think it will rise to £120,000. They don’t want to spend if there’s a reasonable assumption it will go down to £80,000.” Thus the housing market downturn becomes a self-fulfilling prophecy; then it starts to affect other aspects of economic life; then it underpins a recession.Despite the lessons of the early 1990s, homeownership has grown enormously in the last decade, when the public were encouraged to take more risks in a deregulated financial market. Dangerous lending practice ensued, bringing a chastening realisation: that a home may not be the best insurance for one’s old age. The new- Labour housing bandwagon has lost its innocence – as have the homeowning public. “I can see this problem going further still,” says Jane Pow, who has her home on the market following her repossession scare. “It won’t stop here.”

Susie Baker, 36, of Uxbridge (her name has been changed for reasons of privacy) is typical of the newly repossessed: a first-time buyer taken to the brink by a combination of personal events, loans, and overzealous lending. “My father was taken ill, so I resigned from my job,” she says. “I got back into work, but by then I was struggling.” The mortgage went up five times last year and Baker found herself needing £1,000 a month to service her two-bedroom 1960s maisonette. She had a “nasty” credit-card loan on the side.

So Baker defaulted for “about three months”. The mortgage provider got tough. “They called at any time of day or night, Saturday, Sunday. They said, ‘I’m not surprised you can’t pay. You’re only a woman.’ They frightened me.”

She decided on a drastic solution: a “sell and rent back” scheme. It’s hardly ideal, given that it has valued her place at less than it’s worth. But she claims to be happy.

Few are entirely immune, and all that it takes for repossession to take hold is an infelicitous set of circumstances. Sir Charles and Lady Wolseley have had to move out of Wolseley Park House, the Wolseleys’ ancestral home in Staffordshire, following a late-1980s tourism venture that brought bankruptcy in 1996, followed by lengthy repossession proceedings that reached fruition this spring. With reluctance, they are leaving the 34-room Georgian mansion, its 1,490 acres and even some of its art works, breaking a line with the estate that is over 1,000 years old.

Such stories have hardened the public attitude towards banks and, by extension, towards the government. Our wealth is a mirage, says Jane Pow, and can evaporate rapidly. “My grandparents worked down the mines and I’m middle class, thanks to my parents. But let’s be clear – it’s not people like us who’ve got wealthy on this housing boom: it’s the fat cats in the banks and lenders. They’re all over you when they’re setting the mortgage up. But when I called them to resolve my case, they were not interested.”

Some believe this cycle of repossessions could be worse, and more entrenched, than the last. In the last downturn, the state offered help to an extent, in that one could get a mortgage paid if one failed to keep up payments. Since 1995, nobody has been eligible for this kind of companies that buy property from people facing repossession at below market price, then rent it back to them as tenants. Ray Boulger thinks that the numbers of “rent-backs” has disguised the real scale of repossessions. ? Type “repossession” into a search engine and out they come: Quick Cash for Properties, Remortgage Your Home… all illustrating the eternal truism that the poor are a gold mine. Some market aggressively. When her repossession scare occurred, Jane Pow was “inundated with calls” from such companies.

The rent-back industry has a poor reputation. “Sellers are not getting a fair price,” says Adam Sampson of Shelter. “We’ve seen people who’ve sold their homes for 35% less than market value.” The companies often have their own solicitors and surveyors, and sellers can end up with barely a tenancy agreement. But they claim success.

“We’re being hit right, left and centre,” says Mark Brogan of Sell Quick, one such company. “We’ve seen a trebling in the numbers of property owners contacting us compared to last year.” Among them, he says, are “many middle-class families”, particularly those whose mortgages are “resetting”.

Gary Corben, of Cash For My House, argues that while the rent-back sector is in need of regulation, it helps people remain in the homes they love. “The first thing people facing repossession should try to do is sell on the open market,” he says. “If not, then come to a reputable rent-back agent.” He says that he sees owners of everything from “unmortgageable flats in blocks to luxurious executive homes. These people are victims of circumstance. I want to invest in good tenants who will last a long time”.

In turn, the rent-back industry points the finger at the sub-prime lending sector. It has been estimated that lenders in the UK’s own sub-prime sector account for more than 70% of all repossession cases, and a recent report by the Financial Services Authority into sub-prime lending showed that in one-third of cases, lenders hadn’t even assessed the basic affordability of their products for clients. Victims of these sub-prime lenders agree. Susie Baker, for one, wishes “I’d gone to a high-street lender”.

In the housing slump of 1991, phrases such as “a home is a nest, not a nest egg” gained currency. These are phrases we are likely to hear again as the new fearful mood calls into question the wisdom of relying on property as an investment.

Still, the Thatcher principle that “every earner shall be an owner” is now promoted by new Labour. “The property-owning-democracy idea is still with us,” says Yolanda Barnes, research director at the estate agents Savills, “but the language has changed. Now it’s all about being a ‘stakeholder’ in a ‘community’.”

The cross-party consensus remains that homeownership is a good thing. Gordon Brown recently said in parliament: “There are 1.5m more homeowners under a Labour government than there were before our government started. We have extended homeownership to all regions of the country and to people who previously could not afford it.” Some in his own ranks differ: the Labour MP Austin Mitchell has proposed that the government fund local authorities to buy repossessed houses and add them to Britain’s council-housing stock. But there’s a recognition that, as a political bloc, homeowners have to be appeased, and Gordon Brown’s April meeting with the UK’s biggest mortgage lenders reflected that need. There is a danger, however, that any solutions will be seen as after-the-fact.

When I call the government’s Communities and Local Government office, which deals with property issues, a spokesman downplays the repossession scare, saying that the government has a new £76m “financial inclusion action plan” aimed at helping those who are struggling with debt, and that there is “targeted support” for homeowners in financial difficulty through the Income Support for Mortgage Interest scheme. “The rate of repossessions in 2007 was around a third of the rate in 1991,” he says. “With low inflation, employment at record highs and strong productivity growth, the underlying trends are positive.” No catastrophe here, is the message.

The shadow housing minister, Grant Shapps, is less jolly. “Lenders have a social responsibility to ensure that as few people as possible fall into arrears and have their houses repossessed,” he says. “But at the heart of the current problem is that Gordon Brown didn’t put anything away for a rainy day during the good times, and as a result this government has left hundreds of thousands of homeowners facing a very uncertain future.”

Those “tougher times” are starting to make the government’s plans for 3m houses by 2020 look shaky. As Stevens says, “We need more housing, but the plan will presumably be disrupted by the housing downturn. We’re already seeing an oversupply in certain markets.”

So what of the thrift that once drove the homeowner? Stevens says: “The country moved from a culture of thrift to a culture of spending, to unsustainable consumption.” Banks and building societies encouraged riskier behaviour, lending to people who previously couldn’t borrow, and property programmes provided the propaganda. “I suppose those programmes will recede, along with their get-rich-quick message.” Stevens recently welcomed a Czech academic to York. “He couldn’t believe the number of programmes on property we had here.”

It’s all been an illusion, Stevens argues. For most people, the gains were on paper. He believes the market should be stabilised, with lenders offering more fixed-rate mortgages. “Mortgage rationing doesn’t do anyone any favours.”

And what of the bigger picture? Are we questioning the very wisdom of owning a home as a route to self-fulfilment? “I don’t think we’ve got that far,” says Yolanda Barnes of Savills.

“But I suspect it’s going that way, and the idea of homeownership as some sort of a ‘right’ will disappear.”

Ed Stansfield of the research consultancy Capital Economics expresses similar sentiments: “There must be a point at which owner-occupation is reaching its natural limit. The most recent statistics show a fall.”

The “fishing stories” about houses you wish you’d bought, the buy-to-let plans, the fantasies of gains on foreign properties – these conversations diminish as the mood becomes more chastening. Meanwhile, the people facing repossession – and perhaps also the general public – have learnt the value of suspicion. “Don’t trust banks an inch,” says Sir Charles Wolseley. “They’ll force lending on you in fine weather and claw it back when it’s stormy.”

And the next generation may become known as the one that refused the British domestic dream and took its foot off the property ladder.

“I think it’s changing,” says Jane Pow. “My son Neil, who is 24, says, ‘I don’t think our generation is going to see it in the same way.’ ” The Pows’ house is on the market for £300,000 and they look forward to renting their next home, particularly as the mortgage resets this month. “We want to get control back,” says Jane Pow. “We feel we’re going to beat the system.”

House prices: the 10 most recession-proof counties in the UK