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HPC Definition | Thinking of Buying | Home Owners | BTL Landlords | Thinking of Investing | Renting
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"There will be no House Price Crash"......"This time next year we'll be BTL Millionaires"

Psychology in vested interests and the media

The human emotions behind the property bubble are greed and fear the same as the stock market. Those with a vested interest in house prices remaining high continue to inflate the housing market. The media has also had a huge influence on psychology. House prices are a popular subject and are never out of the news which is generally an unhealthy obsession. Television programmes on subjects like home staging and property development have become all too common on our screens and have made anything to do with property the in-thing.

Many of the property make over shows have been sponsored by the little red telephone insurance company, this is the insurance arm of one of Britain's biggest mortgage companies. When the presenters advise people to clear some clutter, hang new curtains, and see it sell for an extra £10,000 they achieve two desirable outcomes for the mortgage lending part of their sponsors; a) they talk up the market and raise expectations, b) they ease the sale of repossessed properties.

Grand Designs is sponsored by ING, and never shows the plans that fail, journalists would do.

The Economics of a boom and bust

Main Page
House prices
Differences in the house price indices
First Time Buyers
Buying a home
Buying to Let
Renting your home
Mortgages,Savings,Investing & Pensions
Northern Rock
Credit Crunch

So exactly why are we in this current mess? Why has there been a house price boom and why is it inevitable that there will be a house price crash? Economists have long ago stopped trying to predict when bubbles will burst and in particular the UK housing market bubble. What are the economic tools available to the Bank of England to control the economy and what influences changes in interest rates?

The current UK price boom started after the bubble burst, and about the same time as the Equitable problems started to appear. People (we all know someone) stated their DIY pension by buying a house or two and renting it out. The boom that followed was perpetuated by the different interest groups around the property market. Like the bubble it is perceived as a one way bet, which is what you want when saving for your retirement.

The housing market is not actually a market, where prices are controlled simply by supply and demand, many estate agencies are tied to or owned by financial institutions. This means that it is better for the owners of the estate agencies (Halifax and the others) to sell no houses, pay the agents to authorise risky loans than to mark down prices. Marking down prices will continue to encourage some of the smarter buy-to-letters to cash-in, releasing more housing stock onto the market, and risk triggering the crash.

Two actions available to Gordon to create affordable and a sustainable housing market without increasing interest rates are a) create a "walk away-leave the keys" right, so that negative equity stays with the lender rather than the borrower, b) make estate agencies separate from the financial institutions, both of these would better allow the housing market to operate properly.

Investing abroad

It seems that everyone is now investing abroad in countries like Spain, France and Turkey to name just a few. But what is the effect of this rampant property investment and where is all the money coming from?

Government and politics

People always turn to the government for answers especially in situations like this. What can the government and politics do to deflate this house price bubble and what can they do, if anything, to prevent a house price crash? Many people wonder what Gordon Brown's overall plan is for the UK economy and why his policy seems to be to get people to borrow more and spend more; in short "Booming House Prices and Booming Debt"! Now the Chancellor has become Prime Minister will his luck run out and the economy come crashing down around him? The run on the Northern Rock Bank may be an indication that people and institutions are both becoming more concerned about the supposed strength of the U.K. economy which appears to have been built on consumption and debt.

The Law

Many people are calling for changes in the law to be made especially around planning and taxation on owning second homes. What effect will HIPS have on the housing market and should estate agents be regulated. We have already seen the FSA regulate mortgages but how far should regulation go and what is the cost of increased regulation?


SIPPs are the new buzz word. However, it remains to be seen what effect they will have on the UK housing market.

What is the effect on business investment in the UK and what will happen if the UK goes into a recession?