With low mortgage figures and far less property activity than we're used to, we look at whether the markets really are abnormal and dead.
Think back to the heady property bubble years, when prices could never fall, when we couldn't get enough of property TV programmes, and when there was absolutely no downside to buying even if it meant you had nothing left at the end of the month for buying a new doormat. At that time, we were taking out mortgages at a rate of 500,000 to 600,000 per quarter, according to the Financial Services Authority.
Now, lenders and other commentators are despairing that the mortgage market is not “normal”, since for the past two years and more new mortgages have averaged just 200,000 to 300,000 per quarter. The Council of Mortgage Lenders said just recently: “Lending levels are still low and there is a long way to go until this bruised industry can return to anything like normal.”
These sorts of comments are coming thick and fast, and they're being interpreted to mean that the property market is dead, too, but is the mortgage market really being abnormal and is the property market – a different beast – truly dead?
The parable of the harvest mouse
[SPOTLIGHT]In its two years of life, a harvest mouse might have a lot of bad luck with the weather. While the farmer's happy his crops are well watered, the mouse believes the world is always wet and cold. In its opinion, it was a wondrous and abnormal event when, in its twilight weeks, it experienced lots of bright skies and warming sun.
The mouse has an excuse for these ideas, due to its short life. We live longer, and those who are still young have internet resources to tell them what things used to be like. We also have better memories than harvest mice, although the rodents might not believe that if they read some news sites on the internet.
The point is that we shouldn't be comparing today to the recent golden age of housebuying when, for many years, our appetite for buying at any price could not be sated, and lenders extended increasingly silly amounts of credit to do so.
Our stretched budgets encouraged us to shop around and remortgage a lot, which meant more mortgage sales every quarter. Compare that with now, where unusually cheap SVRs have encouraged people to sit on those flexible mortgages and wait until interest rates rise. (A riskier strategy than it sounds, as I explained in Pay 5% on your mortgage for a decade.)
Rather than complain about little activity, then, if lenders want more new mortgage activity then they need to offer better deals.
We're behaving like normal people should
Yet you can't call the period before the golden age of rising house prices “normal” either. There is no such thing as normal in the property and mortgage markets, there is just different behaviour with different times.
Today, the mortgage and property markets aren't dead, and our behaviour is both different once again – and better.
All participants of these markets are being more thoughtful than during the bubble years. Lenders are offering more sensible mortgages and expecting larger deposits. Borrowers are taking out fewer mortgages (whether they want to or not) that would stretch them as much as the crazy heights of 2007. This is even though lenders are allowing them more credit overall than just a year ago.
And even sellers are finally getting the message and have on occasion lowered asking prices this year, according to Rightmove.
It seems to me that all participants are being more astute, on average. Perhaps we could even say that the market is alive and functioning more sensibly in than in a very long time. If that is abnormal, like lenders and others claim, then let's hope for many more years of abnormality to come.
More: compare mortgages through lovemoney.com | Fix for five years at 3.34% | The sneaky mortgage rate that may cost you £££