Squaring the house price circle

On Tuesday I was doing my regular monthly Expert slot on Jo Whiley’s Radio 1 programme. This time it was on the credit crunch and the impact on borrowing, and especially, mortgages. One section was about first time buyers and getting a mortgage. In a nutshell I said the following:

  • No one knows what’ll happen to house prices but the risk of a significant drop is greater now than it’s been before.
  • If you don’t have a deposit you’re not going to get a mortgage and probably shouldn’t.
  • If you’re looking to buy a big earnings multiple e.g. six times, it really is probably best to sit tight.
  • Renting isn’t a dirty word; if house prices dropped by roughly more than 6% you’d probably be better off renting than buying right now.
  • Houses are an asset and should be considered as such.

Of course all these are good sensible tips. And what with the Radio 1 audience being younger than other stations, it’s important to keep it plain and simple as people are less experienced with finance.

Yet afterwards, I was mulling the fact that while by answering this way I’m of course perpetuating house price decline, I have no choice as my answers are correct as I believe them to be. If first time buyers withdraw from the marketplace then there’s less money in there. I suppose this is why we see a spiral in all things rather than gradual change. Once sentiment shifts, it changes quickly, and that in itself impacts the situation so the sentiment is proved correct.

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