Unless you've been a sleep for the past 6 months you may have noticed that there has been a bit of "turmoil" in the banking sector regarding mortgages.
I did comment last July that people's obssession with treating houses and especially homes as an investment could come back to bite us. I also said we should take a balanced long term view to investment and that we should not assume interest rates would remain at those incredibly low rates.
As it is people kept mortgaging and remortgaging their properties but now its coming back to roost. One bank is closing itself to new business and others are raising rates and stopping cheap fixed deals.
The impact of that was brought home by a chap on channel 4 news. He had seen his 2 year fix end and his rate go up from 4.95% to 7.95% and his payments go up by £1000 PER MONTH. I did a quick calculation and his mortgage must be close to £400,000 (I wouldn't be able to sleep!!). The thing is, historically, 7.95% is not low. My first mortgage was 11% in 1988.
The same article said that some experts believe that to be on trend property prices need to fall 27%. This would raise the prospect of that dreaded phrase negative equity.
Of course for some of us this is not new I bought my first flat in 1986 for £41,650 and when I came to sell it in 1994 the thing had bearly moved. Of course there were some people who were sitting on some big paper losses.
If you don't need to move negative equity is no problem you just wait it out but some people will need to to move and they will be in a right state.
I think this all goes to show we need to take a balance view on finance like life. If you can't afford it don't buy it. But then we all like to live the dream I guess. And resposbility is boring.