It has to be said that most people are aware of two things today. Number one is that the housing market is far too high and two that we are in the middle of the credit crunch. This is mainly because the media keeps reminding us of both things.
That said are they inextricable linked and if so how?
We'll take a look at the over inflated housing market first. Houses are a commodity just like anything else, and are therefore governed by the rules of supply and demand. If the quantity of houses available is less than the number of purchasers wanting to buy, the price is inevitably going to rise. Likewise if supply exceeds that required, the price of property will fall. Therein lies the basis of the capitalist economy in which we live.
But how is this reflective of the housing market? Well, over the last decade mortgages have been more accessible to the public, one type of which is the self-certification mortgage. With this type of mortgage it is up to the individual to certify what they earn and this may be open to quite a broad span of interpretation on his part.
In the past, house prices were set by the amount of money borrowers were permitted to borrow based on their earnings. As an example, if prospective borrowers were only allowed to borrow 100,000 in a specific area, logic would dictate that house prices there would stay in and around that price. Otherwise, it would be impossible for the houses to be sold as people there could not afford them, unless they saved up a larger deposit to support the loan.
Self-certification has put paid to this because, depending on the applicant, the income declaration may be somewhat greater their actual income. The knock on effect of this is inflated house prices. Because of the ability to borrow more, competition for property has meant that people can be more flexible with regard to the amount they are willing to pay.
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.
As a result, the housing market is at a standstill as there is simply not enough money around to buy.
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.
It may sound to you that, owing to the fact that I am a financial and mortgage advisor, I may be shooting myself in the foot, as it were, by saying all this. But the truth of it is that everyone, myself included, would benefit from a more stable property market with attainable mortgages and I see this as the only way that it may be achieved. - 15465
That said are they inextricable linked and if so how?
We'll take a look at the over inflated housing market first. Houses are a commodity just like anything else, and are therefore governed by the rules of supply and demand. If the quantity of houses available is less than the number of purchasers wanting to buy, the price is inevitably going to rise. Likewise if supply exceeds that required, the price of property will fall. Therein lies the basis of the capitalist economy in which we live.
But how is this reflective of the housing market? Well, over the last decade mortgages have been more accessible to the public, one type of which is the self-certification mortgage. With this type of mortgage it is up to the individual to certify what they earn and this may be open to quite a broad span of interpretation on his part.
In the past, house prices were set by the amount of money borrowers were permitted to borrow based on their earnings. As an example, if prospective borrowers were only allowed to borrow 100,000 in a specific area, logic would dictate that house prices there would stay in and around that price. Otherwise, it would be impossible for the houses to be sold as people there could not afford them, unless they saved up a larger deposit to support the loan.
Self-certification has put paid to this because, depending on the applicant, the income declaration may be somewhat greater their actual income. The knock on effect of this is inflated house prices. Because of the ability to borrow more, competition for property has meant that people can be more flexible with regard to the amount they are willing to pay.
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.
As a result, the housing market is at a standstill as there is simply not enough money around to buy.
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.
It may sound to you that, owing to the fact that I am a financial and mortgage advisor, I may be shooting myself in the foot, as it were, by saying all this. But the truth of it is that everyone, myself included, would benefit from a more stable property market with attainable mortgages and I see this as the only way that it may be achieved. - 15465
About the Author:
Mortgage Route gives assistance help and mortgage advice from qualified mortgage brokers coupled with free mortgage calculators and sourcing tools.
