ROOF Blog

Research by the thinktank Resolution Foundation shows low-income households – with an average of £15,800 at their disposal – are walking an increasingly precarious financial tightrope.

It has found that 24per cent of low-wage households spend more than a quarter of their monthly income on debt – twice the number from three years ago.

The study shows nearly a third of low-income households have high loan-to-value mortgages and are in negative equity, making them vulnerable to homelessness if they lose their job.

Sue Regan, chief executive of Resolution Foundation, said: ‘What’s important is not so much about when we get out of recession. It’s how sustainable the economy will be going forward if we increasingly see low-income households default on loans or lose their house.

‘If we don’t address this, it has got big economic ramifications for UK plc.’

The foundation is calling for high-street banks to involve themselves more in debt counselling when low-income households miss their first mortgage payment.

Construction will start on a third fewer social homes next year, in a vivid sign of wider impending restraints on government spending.

The news comes as the country’s property quango the Homes and Communities Agency (HCA) reveals that the value of its development assets has plunged £1.1bn as a result of the housing crash.

But this financial fillip will only have a temporary impact, according to targets set by the HCA. Overall completions will continue to rise from a total of 55,625 this year to 61,500 next year, partly as a result of the government’s injection of money.

But housing starts will drop away next year, suggesting that there will be fewer completions in the coming years.

Only 29,900 grant-funded housing starts are scheduled for 2010-11, a drop of 34 per cent from the 45,500 target for the current financial year.

Of those, the number of social rented homes built under the National Affordable Housing Programme will halve from 30,389 in 2008-09 to 14,500 next year.

The economy shrank by 0.4 per cent in the three months to the end of October, an unchanged rate of contraction from the third quarter, the National Institute of Economic and Social Research (NIESR) has estimated.

The projection of continued weakness came after official figures showed that industrial production in September had picked up after factory stoppages caused a sharp fall in output during the summer, but there were no signs yet of a sustained upturn.

NIESR director Martin Weale, said: ‘People have been hoping for a clear recovery and that isn’t visible yet. The past pattern doesn’t lead us to think there has been a strong turnround.’

Mr Weale foresees the economy bouncing along the bottom at depressed levels of output for some time, even if spending brought forward to the fourth quarter to avoid the hike in VAT rates early next year provides a modest boost to growth in the short term.

The housing market rebound showed no sign of slowing in October, according to the latest figures, with prices rising by 1.2 per cent.

Halifax said that the increase was the fourth consecutive rise by its measure.

House prices are now 7.1 per cent higher than they were six months ago and 2.9 per cent higher than in December last year, the lender said.

Prices in the three months to October were 2.9 per cent, or £4,667 higher than in the previous three months.

Halifax said that there were early signs that more people were beginning to put their homes on the market as conditions improved; a trend that economists have said could lead to a relapse in recent price rises.

Howard Archer, chief economist at Global Insight, said: ‘Personally, I’m sceptical that house prices can go on rising for much longer. That’s not to say that they will fall off a cliff – I just don’t think the economy is strong enough to sustain these increases.

‘A relapse in house prices will be even more likely if the recent firming trend leads to more properties coming on to the market, thereby moving the supply-demand balance away from vendors towards buyers.’

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

The Governor of the Bank of England, Mervyn King has called for big banks to be broken up, in a speech to business leaders in Edinburgh. He suggested that ministers’ refusal to hive off the ‘casino’ investment arms from High Street banks could lead to a crisis ‘even worse than the one we have experienced’. And he warned that rapid increases in the national debt meant Britons would be paying to clear up the mess ‘for a generation’. His intervention came as official figures revealed public borrowing soared to a record £77.3 billion in the first six months of the financial year - the highest half-yearly figure since the Second World War.

Gross mortgage lending totalled an estimated £12.5 billion in September, a 2 per cent rise from the £12.3 billion in August but down 27 per cent from September 2008, according to new data from the Council of Mortgage Lenders (CML). Behind the modest improvement from August to September and the relative stability of recent months is the balance between the types of lending taking place - there has been a pick-up in house purchase activity, but this is off-set by the decline in remortgaging. Paul Samter, CML economist observed: ‘House buying activity is running at considerably higher levels than around the turn of the year. However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop.’

Another £70 billion should be shaved off public spending to rebalance the budget, The Confederation of British Industry (CBI) has told the Treasury. The Treasury is planning to borrow £703 billion from 2009/10 to 2013/14, an unprecedented run of deficits that will push the national debt to £1.4 trillion. However, even that stark estimate may be too low because the economy will not rebound as fast as ministers hope, business leaders said. ‘With a lacklustre recovery in prospect and a structural loss in output, the CBI estimates that borrowing could even exceed this projection by £50 billion,’ the group said in a submission to the Treasury. In addition, another £70 billion will be needed over the following two years to balance the budget by 2015-16, the CBI said. The CBI has drawn up a detailed plan to significantly shrink the public sector, cutting costs and handing over many tasks to private companies. The group also wants public sector staff pay and benefits to be curbed.