House Price Spy Blog

After my blog of a few weeks ago I thought I would follow that up a little bit. Gordon Brown had vowed not to go down the route that the US has which led to instability in financial institutions saying that they were on their own.

With the Northern Rock hysteria caused by the TV and media with news images of pensioners taking out their life savings (the next day they would put it all back in of course) Gordon Brown buckled and said he would cover Northern Rock and any savings that were kept in there would be covered. As if by magic people returned the next day to pay back in their money-cue smug grin from Gordo for saving the day…

Northern Rock have been criticized for selling risky mortgages especially to first time buyers.

The Northern Rock fiasco has made banks think twice about inappropriate lending, many mortgage lenders have pushed their rates up to 11.5% for some higher risk categories. More and more lenders including credit cards have begun turning away potential borrowers, however this message would have been so much stronger if Gordo had not backed down and relented to pressure.

The last financial institution to go under was Barings Bank in 1995, there was no Treasury assitance on that occasion.

You can’t have failed to notice that there was somewhat of an international crisis going on…American lenders have been criticized for irresponsible lending causing chaos in the international markets. The US Treasury has used reserve federal cash to consolidate lenders.

The governor of the Bank Of England Mervyn King has now requested that Gordon Brown not bail out financial institutions in the way the US have done and this has sparked a fear that house prices will drop in the UK as lenders and their shareholders bear the brunt of this crisis.

The raises in mortgage borrowing rates of the last few months have put a little bit of caution into borrowers and this will have a knock on effect on house prices in the years to come. Combine this with the reduction in bank profits and shareholders payments and you have a more difficult position for many borderline borrowers in the UK.

Any crisis abroad will have the usual trickle down effect in the UK with finance and property the expected sectors to be hit hardest.

Gordon Brown still has the option to use reserve funds to back up affected lenders but seems unlikely to spend tax payers money for this purpose.

The Bank of England have kept the mortgage rate at 5.75% untill October 2007.

The rate has now remained unchanged for two months after 5 successive changes which might suggest that mortgage inflation is now more managable.

Keep up to date directly at the Bank of England keep site

The total debt including mortgages has risen by 10% in the last year to £1.55Trillion.

The average borrow is over £8,500

The amount of that which is related to credit cards has risen 5% in the last year.

The continued rise in house prices has been blamed for these figures, The Bank Of England has taken measures to curb property inflation and there are signs this month that prices (or at least increases) have dropped with average prices dropping in Edinburgh and a slower rise in London.

Figures produced by Credit Action a registered charity.