ROOF Blog

Fears that millions of homeowners could soon be paying a heavier price for rising unemployment have been fuelled by the news that more than 20,000 people have, this month, seen the cost of mortgage payment protection insurance (MPPI) jump by about 20%. Yorkshire building society has pushed up the cost of its mortgage PPI in a move it says will typically add about £46 to the amount borrowers pay each year. The actual increases will vary, depending on the type of policy. The Yorkshire’s new mortgage PPI provider, Cardif Pinnacle, said that the cost of providing this cover ‘has risen to record levels’ following a huge increase in claims, presumably from homeowners losing their jobs.

House prices are up 0.1% compared to February, the smallest margin ever recorded at this time of the year, when prices have never fallen month on month, according to property website Rightmove. The near standstill in prices has fuelled concerns that a decline in the housing market could lead to a slowdown in the wider economy as unemployment, public sector spending cuts and potentially higher interest rates hit the consumer. Both Nationwide and Halifax reported house price falls in February. Nationwide said average prices dipped 1% to £161,320, ending a run of nine consecutive monthly rises. Halifax reported an even sharper fall of 1.5%, with average house prices dropping to £166, 857. It remains unclear whether February’s data was a blip caused by the severe weather conditions in the UK or a more long term trend.

Higher unemployment is forcing more young people into further education, increasing demand for short-term flats and providing a boost for Unite, the student accommodation developer. Demand is expected to accelerate at such a rate that Unite yesterday told investors it would continue to buy properties in student hotspots such as London and would not be reinstating the dividend — last paid in the middle of 2008 — until it had returned to ‘meaningful’ profit, even though the group announced a profit of £600,000 after a loss of £5.8 million in 2008. A lack of job opportunities was partly behind a 23% rise in the number of university applications between February 2009 and the same month this year, Mark Allan, chief executive of Unite, said yesterday.

Anyone who starts work after six months on benefit will be at least £40 a week better off, under a guarantee yesterday by Yvette Cooper, the work and pensions secretary.

Other proposed changes to housing benefit aim to cut some of the highest rents the state pays for out-of-work people, and to reduce the immediate impact on rent payments for people moving into work.

In an employment white paper and housing benefit review, Ms Cooper confirmed a government promise of a job, training or work experience after six months’ unemployment for anyone aged 18 to 24.

Some 100,000 posts will be made available, including police community support officers, work in the NHS and probation service, and constructing a national cycle network.

The recession’s toll on consumers will be laid bare today as Bank of England figures show that nearly a third of workers have had their household income drop by at least £1,200 a year amid soaring unemployment, shorter working hours and pay freezes.

About 30 per cent of manual workers and 27 per cent of office workers said that their disposable income – money left to spend each month after paying tax, housing costs, utility bills and loan payments – had fallen by £100 or more over the past 12 months, according to the Bank’s ‘Quarterly Bulletin’.

The monthly Halifax house price index shows that house prices jumped by a bigger than expected 1.4 per cent in November, spurred on by higher demand and a shortage of properties for sale.

The increase was the fifth successive monthly rise with prices more than four per cent higher over the first 11 months of the year. The average cost of a house in the UK is now £167,664.

However, that is still 1.6 per cent cheaper than this time last year, and the recovery in house prices that we’ve seen in the past six months is unlikely to be sustained next year, analysts warned.

Seema Shah, a property economist at Capital Economics, said: ‘With the economic recovery likely to be lacklustre, unemployment set to rise and household incomes likely to be under downward pressure from pay freezes, house price falls remain the most likely outcome next year.’

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.

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 number of people defaulting on loans has risen and are expected to increase in the coming months, a Bank of England survey has uncovered. A poll of banks and building societies found more people unable to repay mortgages and other debts because of rising unemployment. However, financial institutions expect the availability of credit to rise in the next three months, and households are likely to be offered and demand more secured credit. A rapid return to the pre-credit crunch lending levels remains extremely unlikely.

The Financial Services Authority has warned a number of insurers have recently increased the premium charged for mortgage payment protection insurance or reduced the level of protection offered, at a time of rising unemployment. The City watchdog said some insurers have increased premiums by between 30 and 50 per cent, while others have cut the maximum monthly payout and increased the waiting period before people can claim from 60 to 90 days.