There won’t be a house price crash, but beware a buy-to-let dip
Yes of course there will be households who cannot cope, and fall into arrears. There may even be a marked rise in foreclosures. But as Mark Carney, a former governor of the Bank of England, once observed, however hard things get, British households will do almost everything to keep paying their mortgages.
That’s why banks are so keen on mortgage lending; there is no form of lending which is safer. Despite very high levels of household indebtedness, there were in fact relatively few UK mortgage defaults at the time of the financial crisis.
This didn’t stop regulators confusing a banking meltdown caused by subprime lending in the US with perceived excess in the UK housing market, and clamping down on UK mortgage lending accordingly.
As everyone knows, it has been difficult to get a mortgage ever since. Rigid rules on job security, minimum deposits, loan to value and loan to income rules are routinely applied, making the market much more resilient to upsets. Don’t expect a flood of cheap properties coming on to the market as a result of higher borrowing costs. Much more likely is that people sit it out.
The other precursor to an outright crash is rapidly rising unemployment. This is possible; it’s amazing how quickly circumstances can change. But with the labour market as tight as it is today, it seems unlikely.