Housing Demand And The Resulting Debt Crisis

Houses prices in the UK and USA have continued to grow in recent years and have shown little sign of slowing until recently when the sub prime mortgage crisis hit the USA and then the UK.

As house prices increased people found themselves with ten of thousands of pounds in equity in their house. Thoughts of an extension, nice car and clearing the credit cards started to creep into peoples minds and the next thing you know they have either re-mortgaged or taken a huge loan on the basis of this excess equity.

What people have failed to realise is, is that this remortgage or loan has to be paid back and that interest rates have been historically low so that when they started to increase people found that they couldnt afford to repay the loans and repossessions have rocketed!!

Tut tut. Debt advice workers are now especially busy trying to sort this mess out! Even some banks are struggling as people are defaulting on these loans. I have heard that some mortgage advisers are encouraging people to inflate their own wages so that they can buy bigger houses and they can get bigger commissions from the sales. A few years down the line all this goes wrong as interest rates and repayments increase at a faster rate then our wages that seem to increase at a much lower rate than inflation on a yearly basis. With more increases in petrol prices my money is having to stretch further and further every week!

Whats needed is a housing price correction so that people can afford to get on the housing ladder without spending 6+ times their yearly earnings which is the most recent figure for the wages/cost of houses ratio. This is the highest figure in decades. House builders should also hang their heads in shame at the landbanks which they have in their possession. Many house builders own land for building hundreds of thousands of houses on (im not exaggerating here) which they are saving for a rainy day. As demand for houses and land increases this land becomes more and more valuable so they buy more for the landbank which leads again to an increase in prices and so on. What is needed is for the governments to force these builders to build after a certain number of years if it is ex-government land which it normally is.

Until then prices will keep on increasing until a bigger debt crisis throughout Europe and North America leads to an uneatable level of repossessions and a debt crunch which effects everyone and could pull our countries into a recession not seen for decades.

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