You have to have been living under a rock to be unaware of two very important pieces of news currently dominating the media. We are slap bang in the middle of a credit crunch and the cost of houses at the moment is unfathomably high.
But the question is, are these two factors connected, and if so, how do they affect each other?
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 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.
Which leads us on to the credit crunch. Lenders are now placing more restrictions on mortgage purchase and verification of income is compulsory. Due to the previous competition for property and the subsequent inflated house prices people are finding themselves in the situation where they cannot afford the property on the market because their income is insufficient to obtain a mortgage to cover the purchase price.
And the property market is presently stagnant because there is just not the money available to buy houses.
To add insult to injury, we have at heart become a nation of borrowers and not savers. Our only financial salvation may lie in reversing that trend by going back to saving up significant caches of money and complementing that with more achievable mortgage requests. We must learn to live within our means again.
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. - 15224
But the question is, are these two factors connected, and if so, how do they affect each other?
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 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.
Which leads us on to the credit crunch. Lenders are now placing more restrictions on mortgage purchase and verification of income is compulsory. Due to the previous competition for property and the subsequent inflated house prices people are finding themselves in the situation where they cannot afford the property on the market because their income is insufficient to obtain a mortgage to cover the purchase price.
And the property market is presently stagnant because there is just not the money available to buy houses.
To add insult to injury, we have at heart become a nation of borrowers and not savers. Our only financial salvation may lie in reversing that trend by going back to saving up significant caches of money and complementing that with more achievable mortgage requests. We must learn to live within our means again.
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. - 15224
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