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.
House prices have usually been based around the individuals ability to borrow an amount of money, which in turn was reflective of the amount of their earnings. Now it is fair to say that if in a certain area the average mortgage that can be attained is 100,000 then the average house price will not exceed that, since the money for purchase would not be available unless there were savings available to add to the amount borrowed by the individual.
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.
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. - 15224
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.
House prices have usually been based around the individuals ability to borrow an amount of money, which in turn was reflective of the amount of their earnings. Now it is fair to say that if in a certain area the average mortgage that can be attained is 100,000 then the average house price will not exceed that, since the money for purchase would not be available unless there were savings available to add to the amount borrowed by the individual.
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.
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. - 15224
About the Author:
Advice on mortgages from qualified Independent Mortgage Advisors help information and no obligation mortgage calculators come to Mortgage Route
