Mortgage Lending On The Rise
Bankruptcies on the increase, extended mortgage terms of up to five times salary, and a housing market which will just not slow down - these are all simmering in the background, ready to explode at some point, unless the wreckless nature of the consumer is some how dampened over the coming months.
The housing market is vitally important to so many aspects of day to day life, with mortgage payments a massive chunk of monthly out goings for many home owners. It just takes a small increase in payments, and a down turn in the employment market and the problems will be all too quickly apparent. Once the housing market begins to turn down, there are many "speculators" out there who will be keen to bank their profits. It is this degree of property "speculation" which can often cause the initial concern, with many people becoming involved in buying houses as investments, second homes, etc. They will be the first ones to try and exit the market, and the initial trickle can soon turn into a stampede, with buyers holding the upper hand as the swell of sellers increases.
As potential buyers see interest rates continuing to edge up, house prices falling back from their high, and the number of sellers increasing, they will not be in a rush to invest. The next step is the panic seller, who will take a sub-market price to exit the market, thereby having a knock-on effect on the "market" value of similar properties - further strengthening the hand of the would be buyer.
Increased interest rates, and falling house prices also impact on consumer spending, with people suddenly becoming a little more cautious, a little more wary of the small buffer between income and out goings. As consumer spending comes under pressure, this has a knock on effect on business, which in turn directly effects the employment market. Job looses can follow, putting further pressure on home owners who may not be able to afford increased mortgage payments. This leads to further selling pressure in the housing market, and the creation of a "vicious circle" of increased caution, reduced spending and more financial hardship.
If the economy is managed correctly, and consumers appreciate the signals from the Bank of England, a recession can easily be avoided, but the current trend of spend spend spend is worrying and should be monitored carefully.
Related Tags: mortgage, loans, home loans, lending, house loans
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