A German economist visiting Britain was recently said to have declared himself baffled that a report about rising house prices was deemed to be good news. In Germany, he retorted, inflation in house prices, like inflation in food or energy prices, would be considered quite the opposite.
By implication, there is an intellectually respectable case for interpreting favourably this week’s news that the Halifax house price index has plunged by 2.5 per cent, the biggest monthly fall since the depths of the last recession in 1992. House prices in Britain have been horribly overvalued for several years — by 30 per cent in the opinion of the IMF. The sooner that we return to a situation in which ordinary people on average salaries are able to buy themselves a decent home without dangerously overstretching their finances, the better. An overvalued housing market has proved injurious to the ‘property-owning democracy’ which Margaret Thatcher set out to construct 30 years ago, turning into reality a phrase first used by Noel Skelton in The Spectator in 1923. Last year, the proportion of Britons who own their own home fell for the first time since the second world war.
Yet the notion that this is an inevitable market correction will provide scant comfort to those it is affecting. The Halifax statistic, indeed, hides the true seriousness of the situation. It is not just that prices are falling; it is that many thousands of homeowners are finding themselves in a financially impossible situation. They bought homes, at inflated prices, with the aid of mortgages which were only just affordable at the fixed rates on offer a year or two ago. As those fixed rates expire, borrowers are finding themselves stuck with their lender’s much higher variable mortgage rate.