Why UK homeowners should take a lesson from the chavs

There's a new fashion outrage doing the rounds of the chav community its members have started keeping the price tags on their clothes so that everyone can see them all the time.

Why, you might ask, would anyone want to do that? The general opinion seems to be that label displaying makes it look as though you have shoplifted the goods and are therefore very cool (shoplifting apparently being considered cool in certain circles).

However, my own panel of teenagers tells me that the trend has nothing at all to do with thievery. Instead the labels are left on for entirely the opposite reason to make it clear that your designer gear is not one of the many excellent fakes on the market but the real thing, and that you can afford to pay for it.

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The status comes not from shoplifting chic but from everyone knowing that you have cash to splash.

This makes complete sense. I have long wondered why anyone bothers to buy designer handbags, tracksuits, baseball hats and the like when only a die-hard expert could tell the difference between the real and the fake.

There's no status in flaunting something that most people think you bought in a street market. But flaunting something everyone can see you bought in the Burberry store? A different matter altogether.

UK homeowners: borrowing more than they can afford

This might not sound particularly relevant to readers of the Money section, but it is: the middle classes have a lot to learn from the chavs about displays of relative status. We have long relied on our cars and our houses to let people know how well we are doing.

Driving a 10-year-old Ford Fiesta and living with your mother? Not doing so well. Driving a brand new Porsche Boxster and living in a four- bedroom detached house with an ensuite to the master bedroom? Doing well.

But just like a Burberry baseball cap without a price tag this doesn't work any more. Why? Because just looking at someone's possessions doesn't give us any idea as to whether they can actually afford to own them or not.

Anyone can take out 0% finance (nothing down and nothing to pay for a year) and get a brand new Saab. And anyone can borrow enough to buy the nicest house on the street. It doesn't matter what your income is and it certainly doesn't matter if you can pay it back within 25 years or not. It used to be that you could only borrow three times your income to buy a house. Then it was suddenly four times and now sometimes it can be five or six times.

You can see why people need to borrow as much as they can. As the Royal Institute of Chartered Surveyors (Rics) pointed out this week, the costs of buying a home in Britain are at their highest for two decades. A two-person household earning roughly the average income living in an average house now spends 22% of its income on mortgage repayments compared with just over 14% in 1996. If people are going to be able to keep buying houses, said a spokesman for Rics, "lenders must continue to offer generous funding levels".

I assume that by this he means that lenders must keep extending mortgage terms, keep offering cashback to first-time buyers (in effect lending people extra money upfront so they can make their first payments), keep increasing the permissible income multiples and so on.

UK homeowners: don't count on incomes going up

But does any of this really make sense to the house buyer? It seems to me that if you can't afford an ordinary repayment mortgage you very probably can't afford to buy a house at all. You certainly shouldn't be counting on your income going up to make house buying more affordable.

First, there is no guarantee that anyone's income will rise many first-timers buy as couples, and babies cut mothers' incomes faster than anything else. Second, just because an income rises doesn't mean there will be a surplus. With the price of basic necessities such as food and energy rising sharply, there may always be a bill that needs paying before the mortgage gets a look-in.

Note that, according to the British Retail Consortium, the price of food has risen in five of the past seven months. And, finally, as interest rates rise (which, given rising inflation, they probably will), just keeping up with interest payments is going to be more than enough for people who couldn't really afford to buy in the first place.

Repossessions have been rising fast in the past year and everything suggests they will keep doing so. And as they do, being the holder of a 25-year repayment mortgage taken out with an old-fashioned 10% deposit that you can actually afford to make payments on is going to look more and more impressive.

It may not be long before the middle classes start showing off not by boasting about their big houses but by pinning their mortgage statements to their jumpers so everyone knows they can really afford to pay for those big houses.

First published in The Sunday Times 27/8/06