On day 1 of #ThePerfectStorm, our series lifting the veil off the UK’s debt crisis, we look at how the ravaging effect of Covid-19 made an already bad financial situation much worse for many local people
Coronavirus has released a hailstorm on the British economy – quarantine and self-isolation, coupled with the daunting prospect of up to a fifth of the workforce taking sick leave at the same time. The workforce has been decimated, and the closure of factories and other workplaces has disrupted supply chains, bottlenecking the economy.
But what about personal debt? Even prior to the pandemic, a combination of the rising living costs, a broken property market and stagnant wages had resulted in a debt crisis nationally, something also felt on a local level by east Londoners, many of whom were particularly affected. With the economy already in a precarious position, the Coronavirus has created the perfect storm.
Some people hope that once the pandemic is over, and quarantine restrictions are lifted, the global economy will bounce back and with it, our personal finances, and it is true that the UK and elsewhere have been showering money on the problem. However, others argue that things have become worse precisely at the right time, and after we have cleaned up the fallout from the pandemic there will be another emerging storm – a debt crisis. Huge numbers of the British population will either be facing new debt or debt in a new severity.
Startling figures, compiled by online estate agent eMoov using house prices according to the Land Registry and Office for National Statistics wage data, have revealed the stark difference in housing affordability in the capital vs the rest of the UK. On average, prospective homeowners in the capital need around 12.05 times the average wage to get a mortgage.
As revealed in the graphs below, Hackney tops the list of least affordable locations in the UK, as the average house price in the area is £575,511 – around 17 times the average wage of £33,800. Hackney is miles above the national average affordability ratio, making it not only one of the least affordable areas to live in the UK based on workplace earnings, and the least out of all the East London lines boroughs.
As house prices skyrocket and deviate further away from what people can realistically afford, millennials are finding it increasingly impossible to get on the property ladder. Comparing this with the relative ease of their parents in acquiring property shows just how much property has been re-valued. Laura Finn, 22, lives with her parents in Chiswick, West London, in a house her father bought in 1973 for £6000. Her grandfather bought a similar house on the same road in the 50s for a mere £1000. Now, the house she lives in would probably go for around a million pounds. “There’s no way that even both my parents could buy the house now despite having more savings and two incomes,” she says. “It is even more unlikely that I would be able to buy or rent a house in the same area.”
Living costs in London are notoriously higher than in areas outside of the city. In fact, London is up there with some of the most expensive cities in the world to live in, in terms of general affordability. This can be put down to myriad reasons. For one, businesses, such as shops and restaurants, charge higher prices simply because they can. While some people may not want to pay £3.90 for a latte, there are enough people in London who will pay that little bit extra.
So, as long as people pay these prices, businesses have no reason to reduce them. Then, given London’s desirability, there are the extortionate commercial rents, meaning products and services need to be a little more pricey for buisnesses to cover the costs. All this means that Londoners will have to pay just that little bit more to get by.
In alarming figures sourced from the New Statesman, Britain has endured the “longest period of average wage stagnation since the Napoleonic Wars 200 years ago”. On average British workers are £13 a week worse off than pre-2008 crash. It is commonplace for people to have multiple jobs, often undertaking various different side-hustles and part-time gigs, not out of choice but of necessity. (We spoke to some of these side hustlers here.)
Georgia Wiltshire, 22, faced the dilemma of needing to gain experience whilst still studying, but really struggled to find any part-time internships that were paid. Wiltshire ended up getting an unpaid internship 2 days a week while studying, but due to the cost of living in London, she “had no choice” but to get a part-time job as well.
“My part-time job pays minimum wage based on my age which is a £2 less an hour than I earned before in an identical hospitality role outside of London which I held for 3 years prior,” she says. “Although I get my expenses paid for my internship, I only get reimbursed every 3-4 weeks so I am having to work more hours at the cafe in order to cover the cost of travel and food expenses.”
Before the coronavirus pandemic, Terri was working as a bartender in a lively venue. But as the pandemic increased in severity, she saw her hours drastically reduced to reflect a decrease in business. Then, on the 20th March, the bars were closed for the foreseeable.
With no end in sight, Terri is feeling stressed about her finances and her future. “I feel uncertain about the coming months as I do not know when I will be able to return to work,” she says.
The government has promised to pay 80 per cent of wages for furloughed employees, but Terri’s employer will not take out of their own pocket to pay their workers. “My employers will only use the reimbursement scheme once the government has rolled out the scheme,” she says.
While Terri has relatively small outgoings, as she only currently pays a small amount of rent and bills to her parents, rather than a landlord. She is still, like so many people who work in hospitality, in limbo. “I know I will be able to get my job back once the venue reopens, however I live with a high risk individual and must wait to return to work until mid-June, should the venue reopen before that.”