Amongst the most important lessons that were learned from the financial crisis of 2007 were some pretty basic facts. Don’t live on credit, don’t lend to people who can’t afford it and don’t let the economy depend upon service industries alone. So, has the impact of these basic lessons made any difference to the future of the UK? Certainly, in the years since 2007, credit has been harder to come by for ordinary people, whether it is a simple Payday loan or whether it is a mortgage. This has resulted in a stalled housing market in many parts of the country. Is owning your own home still an affordable prospect and does everyone really need home ownership?
Home Ownership and Mortgages
With many householders still in negative equity, maybe the question should be asked about whether home ownership is still the most important step in upward mobility or whether renting could become a more regular way of life for the next generation. In many other European countries it is taken for granted that renting is a normal way of life.
The latest figures show slight decline in house prices in London, the only area where there has been a constant increase in the value of homes. As homes in the capital are almost on the edge of being unaffordable, in other areas of the country there has been a slight increase in value but not enough to offset the amount of debt that many homeowners are still experiencing.
Home ownership levels are still in decline and figures show that they are at the lowest for 30 years. This is in part due to the fact that young people can no longer jump into a 100% mortgage with no deposit and to the fact that young graduates want to experience life before settling down to start a family. The government has tried to stimulate the market with a drop in stamp duty but there is a definite limited capacity for growth in the housing market compared to before the financial crisis. In comparison to salaries, house prices have remained very high and this has also contributed to the slump in the market.
So, can we conclude that the housing bubble which fuelled the financial crisis will never rise again? History shows that house prices will always rise in an economy where the demand by buyers outstrips the available supply. But, as a consequence of the credit crunch and the low rates of inflation that have been experienced in the last few years, this could be the time when the usual housing bubble fails to materialise. If this is the case there will be many homeowners who will be paying dearly for a lot of years to come as they try to pay off mortgages that do not reflect the real value of their homes.
Industries in the UK
There has not been a major shift from services industries to a more stable manufacturing base although there are some steps in that direction with the government stressing the need for apprenticeships instead of a university education. At the present time the high costs for an education at a university is still creating a generation of young people who will be indebted for many years after their education is completed. Maybe it should be questioned whether this is the right way forward for the many non-academic youngsters who are still being encouraged to go on to higher education.
A substantial change to the way that the UK makes money might make a difference to whether or not the economic future will be stable. Perhaps the UK government should look to Germany as a model. The German economy has a lot of major companies that are worldwide names but it also has a wide range of small and medium sized businesses (collectively called the ‘Mittelstand‘) and these companies, which typically employ around 500 people, have been one of the reasons for the stable growth of this European country that has weathered the economic storm seemingly with little ill effects. The basis of these types of businesses is that they offer all kinds of services and products, and the owners have a particular mindset. This includes making sure that the business is secure in the long term and that employees are helped with education and raising their families. The government in Germany has been a long-time supporter of these kinds of businesses and the ‘Mittelstand’ provides around 60% of all jobs in the country.
The economy in the UK at the current time relies on many zero hours contracts that provide no guarantees of a weekly wage for many families. Perhaps that is a good reason for pointing out the benefits of the German way which would create a more stable economy and help to promote UK growth in the future.
Banking – Has Anything Changed?
With the fallout from the financial crisis still being felt in the UK, the question about whether or not things have changed for the better is still being asked. Recent events like the dramatic fall in the Chinese stock markets have been felt as a little tremor but could yet cause more than a ripple around the global economies. Bankers are still coming under attack as the bad boys who caused all the problems and are still being sent to prison for fixing LIBOR rates whilst the British government is currently attempting to get rid of the first lot of shares in RBS although taxpayers will still bear the burden of losses.
Although banks are supposed to be operating under more stringent regulations there have been instances where staff have received instructions to cancel appointments with clients who are seeking advice but who are deemed to be non-profitable. So, it would appear that not that much has changed since the mis-selling of PPI or unsuitable types of investments like stock market tracker accounts. The aggressive sales culture that was dominant during the years leading up to the crisis would appear to be raising its ugly head once again. Shareholders want better profits and the banks are under pressure to perform better with less thought for how they can help customers and more concentration on a sale at all costs.
The final chapter in the UK financial crisis is yet to be written. As the UK government has floated the possibility of a withdrawal from the EU (Brexit) and Greece is still floundering in so much debt that there is the real possibility of the breakup of the Eurozone, the way ahead for the UK economy still looks rocky.