The Mortgage Mythbuster

Ready access to cheap money in recent years has led to price increases because people seem to consider only the cash flow cost of somewhere to live rather than the real cost.

Prices have been elevated also by the 'buy-to-let' bandwagon which snaps up low end property in the hope of future riches. This is often funded by loans secured against other properties.

It is the oversupply of money that has fueled and sustained the problem. Prices remain above the mean.

Prices will tend to the mean and oscillate around it.

There will always be an environmental change that triggers the change. In 1989 it was the ERM fiasco, now it is the realisation that irresponsible lending could lead to huge losses for the banks causing them to 'wise up' in a hurry.

Articles like this may seek to offer a balance to the doom mongers but are probably written in cloud cuckoo land!

Suggest care is taken when using a broker. Whilst brokers do help - please note that just because they say they are Whole of Market or independent does not mean they actually have access to all deals, current market conditioins means some lenders are dual pricing ( cheaper direct products than via brokers) .In fact recent FSA comments imply brokers should be to telling consumers that these direct deals may be cheaper- although they have no obligation to provide further information. Ask your broker to do research on ALL deals , of course they might charge a fee but you will find it very worthwhile.

>record employment

It's not how many people are in work, it's how much they are earning.

If 100% of the country were in work but on minimum wage nobody would be buying anything since a couple with a combined minimum wage income of around £20K per year, even on a silly 5x multiplier will only be able to borrow £100K!

An IFA recently wrote an email to me stating that whereas at the beginning of the year there were 27,000 mortgage packages available, this number has now reduced to 7000.

By giving a statistic in your post of 4000 products available without giving a balanced statistic on the vast change recently you are provided false optimism.

The lenders dictate the terms and if as a first time buyer with a good credit scoring you are still being given the underwriters story you should stand your ground and ask for a better deal, or shop somewhere else, banks have to lend money to make money, they are simply trying to claw back their inevitable losses.

The credit squeeze has only just begun and I see no evidence of prudence from Gordon Brown over the last 10 years whatsoever. How can prudence equal £1.3 trillion in personal debt as a nation? That is larger than the country's GDP.

The only reason the UK has felt affluent over the last decade is instead of asking for a pay rises, making stands against rising fuel prices, utilities and food prices, our flexible borrowing against equity has become an all too easy option to keep us quiet. How have people remained so restrained?

Cautionman, you make a few straightforward and sensible points but you fall into the old cliche that some Independent Financial Advisers "scurry around" trying to grab money where they can get it.

We are qualified individuals, the vast majority of us act only in the customers best interests and I for example provide a copy of the research I have undertaken on the client's behalf, and a full "reason for recommendation" document for the client to also keep. We need to be able to justify each and every sale to the FSA and there is no place in our industry anymore for the sharks who used to profit from pulling people out of perfectly good Occupational Pensions etc.

I know you qialified your comments with "some so called Independent Financial Advisers," the key word being "some." However people will remember the rest of the sentence due to your language. Perhaps you write headlines for the tabloids.

Greetings Mortgage Broker1

More power to your elbow,long may your approach to your role reign supreme. You deserve to continue to grow a successful business with grateful clients who sleep at night and then recommend your services. As you say, the operative word is "some" and from experience, for which clichees are no substitute, I stand by that observation . On qualifications, the first step is obtaining them and the second is utilisating them. Some do but "some" don't. As for responsibility to the FSA, I suspect that the "some" are no longer about when the proverbial hits the fan. If the remainder of the sentence stirs food for thought and caution in the choice of advisor, then so be it. That is how it should be.

No I don't write headlines for the tabloids - that would be too easy!

Enjoy your well earned fees

Right on the money Shabba 100, the problem is us posiitive people have to suffer the consequences of the doom and gloom merchants Ouch my wallets got thinner lol.

Congratulations, retrofunk, for getting a 25% reduction off asking price. Either the asking price was grossly overinflated or the owners were desparate to sell at any cost.
I believe there is an oversupply of flats, esp newbuild, and that they should come down in price significantly, but not houses. The unfortunate thing is that some houses are being dragged down with the flats.
I am opposed to any new developments in our green and pleasant land, especially back gardens. I loathe it when a developer knocks down a house and builds a block of flats. This is government policy, and is totally wrong. I object as often as I can to planning dept, without much luck. If builders and developers stop building, so much the better.
As for houses being unaffordable, this is all relative. I know a young couple, both on average wage for the area, who managed last year to buy a 3 bedroom semi in good condition in Surrey, the most expensive county in UK outside London. They got a good mortgage deal with rigorous checks of their background and ability to afford repayments. They would have difficulty getting such a good deal now, but still could. They saved for a deposit of 10%.
People now want it so easy. They want to have a large house for the price of a car. They want a nice car, to go on holiday, latest TV, gadgets, etc. Well - here's news to you - you can't. So stop complaining and start saving. I saved 50% of my gross salary while saving for a deposit. I didn't have a single day off and worked all of my holiday to earn extra money to save for a deposit. This was not that long ago.

To FAZERSIX and Shabba100 and others who seem annoyed by the role of the press as 'Doom and Gloom' mongers - remember that the press ALSO contributed to some of the recent rises to level which are currently unsustainable. Personally, I don't listen to the press, but am interested in the hard facts and figures. Currently these tell me that while the long term trend in house prise growth is up, it has been rising too rapidly recently and a correction to revert to that long term trend has to happen. I also look at affordability, and with house price growth rapidly outstripping salary growth for a number of years now, combined with higher interest rates and inflation, people cannot afford the current levels and some cooling off has to occur. Ignore the press and focus on the facts and the mechanics of a market. All the press does is 'hype' the current market trend up. Also remember that in a market, prices rise both far more and fall farmore than appears logical or is supported by the fundamentals - a lot of this can be attributed to greed and fear ... both of which sells papers.

FAZERSIX ...

For sure. I agree that I am talking on an aggregate level and not a micro level.

I sometimes wonder if the technology hype cycle applies to economic cycles too with the role of the press. I wonder if this applies to both the rising and falling markets considering the role of the media in overinflating the direction. See http://en.wikipedia.org/wiki/Hype_cycle

I think you may be missing a couple of fundamentals; firstly the mortgage market is not just about availability on deposit/rate etc but also on eg availability on income/status. As house prices rose too fast the Lenders designed ways of accommodating this eg income stretch products plus self cert (and other sub prime structures). These are gone so logically (unless something else happens)lending will revert to prior affordability models. This will I suggest continue to put downward pressure on values.

Secondly anyone who thinks "subprime" etc generally does not affect them needs to understand that the broadest definition of subprime (including income stretch) accounted for between 10-20% of the market. Still not affected? Well given the typical house purchase chain was 8-10 transactions long that means every single chain on average therefore has a good chance of failing.

I suggest that this explains why we have so heavy a downturn and so fast.

Thirdly there is no solace in the supply/demand argument in my opinion. The "undersupply" case is based on the 2004 Barker Report commissioned by Gordon Brown. Take a read. Or go to any Buy To Let Get Rich Quick Seminar where they tend to cover it (in part, but do think why).

There are pockets of under-supply but there is no dire national shortage. Brown wanted extra supply to reduce house price inflation but over-egged the case and instead drove prices to unrealistic levels.

Those prices were then accommodated by Lenders via product design (income stretch, subprime, including the Buy To Let model) essentially to feed the demand created.

Residential developers are not completely stupid (particularly so the more successful ones). If there was huge under-supply and huge demand going forward they would not, trust me, stop building.

And forget the profit motive, social housing starts (housing associations, affordable housing etc) are also affected.

Remember though that whilst of interest to economists none of this should be of any concern to anyone who sees their house as purely somewhere to live (ie not an investment, not their pension, not the new car and not way to pay off the stupid credit card etc).

Oh, and never rely on politicians of course.