Why is the housing market so overcooked and does this relate to the credit crunch?

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Why is the housing market so overcooked and does this relate to the credit crunch?

Two pieces of news appear to dominate the news of late and the debating of these gets more strenuous by the day. The facts are that we find ourselves in the eye of the storm that is the credit crunch, and the average house price has soared to an unprecedented level.

But the question is, are these two factors connected, and if so, how do they affect each other?

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 does this relate to the housing market, well simple, during the last ten years mortgages have become easier to obtain not least for the fact that self certification has become more widespread. Self certification allows a borrower to certify what income they receive. Now I am not suggesting that any borrower lies about their income but that said it is somewhat easy to do.

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 changed that. People have been able to borrow more than they should based on overly generous income declarations, so this has in turn pushed the prices up. Prospective buyers in competition with each other have then become more aggressive in their self declaration and have forced up the amount they bid on the house.

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.

And the property market is presently stagnant because there is just not the money available to buy houses. Unfortunately we are currently a nation of borrowers and not a nation of savers. Our long term hopes may only lie in our ability to become a nation of savers again and fund property purchase in a more traditional way of saving significant amounts of money and add that to a more relative mortgage borrowing and essentially live within our means.

As a qualified financial advisor and mortgage advisor you may think that I would not want this as this takes time and I would need business. This is not the case what I really want is not a buoyant mortgage market but a sustainable one and my suggestion above is probably the only way we are ever going to get to a point of a sustainable mortgage market

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Two pieces of news appear to dominate the news of late and the debating of these gets more strenuous by the day. The facts are that we find ourselves in the eye of the storm that is the credit crunch, and the average house price has soared to an unprecedented level. 
But the question is, are these two factors connected, and if so, how do they affect each other? 
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 does this relate to the housing market, well simple, during the last ten years mortgages have become easier to obtain not least for the fact that self certification has become more widespread. Self certification allows a borrower to certify what income they receive. Now I am not suggesting that any borrower lies about their income but that said it is somewhat easy to do. 
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 changed that. People have been able to borrow more than they should based on overly generous income declarations, so this has in turn pushed the prices up. Prospective buyers in competition with each other have then become more aggressive in their self declaration and have forced up the amount they bid on the house. 
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. 
And the property market is presently stagnant because there is just not the money available to buy houses. Unfortunately we are currently a nation of borrowers and not a nation of savers. Our long term hopes may only lie in our ability to become a nation of savers again and fund property purchase in a more traditional way of saving significant amounts of money and add that to a more relative mortgage borrowing and essentially live within our means. 
As a qualified financial advisor and mortgage advisor you may think that I would not want this as this takes time and I would need business. This is not the case what I really want is not a buoyant mortgage market but a sustainable one and my suggestion above is probably the only way we are ever going to get to a point of a sustainable mortgage market Article Source: <a href="http://www.allbestarticles.com" target="_blank">Credit Card Bad Credit People</a> About the Author: <a href="http://www.mortgageroute.co.uk">Mortgage Advice</a> from specialist <a href="http://www.mortgageroute.co.uk">Independent Mortgage Advisers</a> guidance information and free to use mortgage calculators come to Mortgage Route Get a totally unique version of this article from our <a href="http://www.uniquearticlewizard.com/home.php?id=145732&p=1221">article submission service</a>