If houses can't be sold even when the cost of the mortgages on them is at their lowest for 15 years, it spells disaster for many, when that situation reverses, which clearly it must. Its not just that interest rates, which is what makes that affordability possible, are at such historic low levels, but that precisely because of that, there is only one way for them to go - UP. Moreover, because interest rates are at such low levels, then even small nominal increases in those rates will amount to huge percentage rises. Anyone who has bought a house that they can barely afford even at these low interest rates, will definitely find they cannot afford the repayments if they rise by 50% or more, which is quite conceivable. Already, Santander has raised its mortgage rates, because Banks are finding it increasingly difficult to borrow in the money markets, and to attract savers funds, they will need to offer significantly better rates than the current levels.
|Ed Yardeni coined the phrase|
"Bond Vigilantes", which described the
large investors like himself who eventually
decided yields were too low, and Bond
prices too high. When they sold,
Bond prices fell sharply.
That is besides the other problem that homebuyers face. Mortgage payments might be at a fifteen year low, but the demands on people's wage packets from other sources continue to rise sharply. The Government has increased taxes and cut benefits. The cuts to Local Government mean that charges for various Council Services are rising. Global food prices are rising, as rising living standards elsewhere in the world is causing the demand for food to rise. The price of Oil has risen by around 20% in the last few weeks, and if Israel attacks Iran, its price could at least double from current levels. That is feeding through into rising prices, as the last ONS Inflation figures showed. The energy companies are proposing another 9% increase in prices for the Autumn. On top of that workers are facing losing their jobs, or else are being forced into self-employment, zero hours contracts, or part-time work.
It all spells disaster for the Housing Market, and that in turn spells disaster for the Banks who hold around £2 Trillion of UK personal debt, much of it in the form of mortgage debt.