Two pieces of news appear to dominate the news of late and the debating of these gets more strenuous by the day. The facts are that we find ourselves in the eye of the storm that is the credit crunch, and the average house price has soared to an unprecedented level.
That said are they inextricable linked and if so how?
Well first and foremost is the overvalued housing market. Any commodity, and the housing market is no different from any other market, is purely dictated by supply and demand. If there is a limited supply but a less limited demand then prices will rise and if there is a limited demand but and conversely unlimited supply then prices will fall. This is basic economics and what all capitalist systems are built upon.
But how does this relate to the housing market, well simple, during the last ten years mortgages have become easier to obtain not least for the fact that self certification has become more widespread. Self certification allows a borrower to certify what income they receive. Now I am not suggesting that any borrower lies about their income but that said it is somewhat easy to do.
House prices in the past have been very much dictated by borrowers ability to borrow certain amounts of money based on their income. Lets say for example that all borrowers in a particular area are only able to borrow 100,000 then it is fair to say that house prices in that area would in turn rarely rise above that figure as there would essentially be very few people able to borrow enough to fund them unless they have saved up the money to add to their borrowing.
Self certification has in essence allowed people to borrow more and in turn that has influenced the overall housing market and forced prices up. This has resulted in the need for competing buyers to similarly certify their income and as you will have seen a cascading effect has taken place and prices have disproportionately risen.
So what does this have to do with the credit crunch? Well that again is simple, the credit crunch has left a lot of lenders unable to lend at high loan to values and also unable to lend without income proof. So because of past rises we have a benchmark for house prices but a complete inability for buyers to fund their purchase.
The result of this situation is a total grind to a halt of the housing market as liquidity is just not there.
Previous ease of borrowing has led us to become reliant on the lenders instead of saving for what we really need in life. It is only by changing our habits and saving for our purchases that it will be viable to by property based on balancing what we have with an achievable mortgage.
You may think that this advise would be self destructive my business as a financial and mortgage advisor, as it takes time to save again and I am doing myself out of business, but the truth is I would benefit more from a more stable and buoyant housing market, and this advise may be the only way forward for us all.
That said are they inextricable linked and if so how?
Well first and foremost is the overvalued housing market. Any commodity, and the housing market is no different from any other market, is purely dictated by supply and demand. If there is a limited supply but a less limited demand then prices will rise and if there is a limited demand but and conversely unlimited supply then prices will fall. This is basic economics and what all capitalist systems are built upon.
But how does this relate to the housing market, well simple, during the last ten years mortgages have become easier to obtain not least for the fact that self certification has become more widespread. Self certification allows a borrower to certify what income they receive. Now I am not suggesting that any borrower lies about their income but that said it is somewhat easy to do.
House prices in the past have been very much dictated by borrowers ability to borrow certain amounts of money based on their income. Lets say for example that all borrowers in a particular area are only able to borrow 100,000 then it is fair to say that house prices in that area would in turn rarely rise above that figure as there would essentially be very few people able to borrow enough to fund them unless they have saved up the money to add to their borrowing.
Self certification has in essence allowed people to borrow more and in turn that has influenced the overall housing market and forced prices up. This has resulted in the need for competing buyers to similarly certify their income and as you will have seen a cascading effect has taken place and prices have disproportionately risen.
So what does this have to do with the credit crunch? Well that again is simple, the credit crunch has left a lot of lenders unable to lend at high loan to values and also unable to lend without income proof. So because of past rises we have a benchmark for house prices but a complete inability for buyers to fund their purchase.
The result of this situation is a total grind to a halt of the housing market as liquidity is just not there.
Previous ease of borrowing has led us to become reliant on the lenders instead of saving for what we really need in life. It is only by changing our habits and saving for our purchases that it will be viable to by property based on balancing what we have with an achievable mortgage.
You may think that this advise would be self destructive my business as a financial and mortgage advisor, as it takes time to save again and I am doing myself out of business, but the truth is I would benefit more from a more stable and buoyant housing market, and this advise may be the only way forward for us all.
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