Property prices, not mortgages, are the problem
The property market has become unbalanced, caused by excessive lending, and low interest rates.
Both of which have allowed for a surge in property prices over the past decade as people were able to buy in excess of their means.
The current state of the market, where First Time Buyers are excluded, is a symptom of how it has become unbalanced.
Left to itself, property prices will fall as part of a natural market correction, and as this happens, first time buyers will be able to establish themselves in the market again.
These things are fact.
Government and media suggestions that the problem is mortgage lending restrictions, as opposed to property price excess, simply fail to acknowledge these facts and seek to work against them.
Today’s coverage of Grant Shapps calling a meeting on how to address mortgage lending issues for First Time Buyers, falls into this trap.
Let’s be clear: recent years of mortgage lending has been extremely unbalanced, with 125% mortgages made available, and reports of mortgage advisors, even in large banks, helping people fake their income on mortgage applications in order to ensure success.
Coupled with low interest rates, borrowing huge amounts of money had never been so easy. Property prices jumped because of it.
So any suggestion of trying to move back to these previously damaging lending criteria is surely unhelpful.
Obviously, there’s a popular perception that rising property prices is healthy and enriching, and during normal market conditions following normal market trends, this would entirely be justified.
But property prices have risen far in excess of basic trends such as affordability by comparison with wages. It’s therefore natural that property has become less affordable.
It is therefore important that property prices be allowed to fall to sustainable trend levels so it can function healthily as a market.
Under Gordon Brown, the Bank of England specifically reported property price growth as something to be encouraged because it was seen as a healthy economic indicator.
Astonishingly, there were no real concerns of a property bubble, even though it was commonly observed from working class streets to IMF reports on global financial stability as being a concern and a problem.
No doubt political posturing is involved in being seen to talk about mortgage affordability, but it would be nice if we could address the reality: that property prices are too high, and stubbornly resist correction.
While some people may becry any apparent loss of property value as a loss of money, let’s be clear: it’s money that was never there realistically in the first place.