Topic: Mortgage Crisis
Due to problems in the US subprime market, there is difficulty in financing mortgage lending. This is causing several mortgage products to be withdrawn e.g. 125% mortgages and 100% mortgages.
However, maybe the idea of a crisis is exaggerated. True, mortgage companies are becoming stricter on lending, but this is perhaps a desirable response to a period of very lax lending criteria. Although it causes some inconvenience, especially for first time buyers, it does at least prevent future problems in the market.
Volatile Prices
The UK housing market is susceptible to booms and bust. For example, in the late 80s, house price inflation exceeded 30%; this was followed by a year of house prices falling 15% (1992). In recent years, house prices have risen by over 20% and now many fear a housing price drop. The volatility of the house prices in the UK is due to a number of factors.
People choose variable mortgages and take out large loans. This means mortgage payments are a high % of income (over 20%) therefore, any change in interest rates has a significant impact on affordability.
Shortage of supply exaggerates any change in demand.
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