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House price and mortgage news

June 7, 2007

So, the latest prediction is that the average mortgage will rise from seven to ten times the average buyer’s income over the next 20 years. Does this have to happen?

There are quite enough people in dire financial straits every year, unable to keep up mortgage payments and, in some cases, losing their homes. Every tiny rise in interest rates causes distress to house buyers who have over-stretched themselves financially.

If these people had not been given mortgages this could not have happened. If enough prospective buyers are refused mortgages the simple economics of supply and demand should surely result in a drop in the price of houses or, at least, a slow in their growth. Then the same people might be able to afford a more reasonable mortgage.

Don’t forget what happened in the USA recently. Mortgages had been handed out like lollipops to buyers who clearly could not afford the repayments at ratios as high as 10:1 (just like we are predicted to reach). The result: the number of defaulters rose to such an extent that house and share prices fell drastically. It was all so predictable. So why did they allow it to happen? Simple; greed. People want homes they can’t afford and mortgage lenders see interest and other profits to be made.

It doesn’t have to happen here. But, as someone once said, “The only thing we ever learn from history is that we never learn anything from history”. So it probably will happen. I feel so sorry for first-time buyers trying to get on the property ladder.

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