The alleged housing bubble gets a prick…

“The Mortgage Inquisition” Daily Mail Tuesday 22April 2014  This was the headline screaming from the pages of every newspaper, of every political hue alongside the world shattering news that David Moyes had been given the heave-ho.  (I don’t think that with a £10 million pound payoff the ‘mortgage inquisition’ is going to have much effect on his house-buying ability). For weeks, if not months, we have been assaulted on a daily basis by the tidings of woe and despair that the United Kingdom is being engulfed by a housing bubble that is akin in size and effect to the smog in China.  That’s all changed now.  Overnight, the woe and despair has been transposed to those trying to buy a house.  According to the media, we are as a nation facing a rapid slowdown in the growth of house prices.  Is that such a bad thing? Last week, the bubble growth was seemingly out of control and was going to push the property market off the edge of the cliff.  This week, the rapid growth now faces the likelihood of being under control.  I ask again, is this a bad thing?  Apparently, families could miss out on buying the house of their dreams as they wait for an interview with their lender.  To whom are they going to lose out? Another family who themselves are waiting for a mortgage interview?  Let us take a deep breath, calm down and look at the facts.  The so-called ‘stress test’ interview is there to determine whether if in the instance of an increase in mortgage rates, the borrower will still be able to afford their mortgage. So, when the family with high childcare costs, a 5-year car loan, a high council tax band, rates, gas and electric and no added fripperies apply for a mortgage, they need to be aware that if interest rates go up, there is no wriggle room.  When the next family comes in with all the same costs, plus three holidays a year to Dubai, a premium Sky package, a top of the range Mercedes, premium gym membership and a wife with great teeth and other assets who spends £300 a month at the salon, they do in the instance of an interest rate rise have the ability to find the increased mortgage payments.

I would suggest that it is far more preferable to endure the probing stress of the interview (that you may fail), as opposed to the abject misery of having one’s house repossessed having been unable to maintain the monthly mortgage payments.