An eminent economist once wrote: “What looks like it can't go on for ever usually doesn't.” Looking at the 12 years of mortgage lending recovery since the dark days of 1992 and the ever growing level of consumer debt, we should pause to consider this truism.
Statistical fogs apart, the consensus seems to be that the economy is growing faster than anticipated and that the time for low interest rates has passed. We are moving to a period of rising rates that reflect the need to keep the economy from running ahead of its underlying capacity and investor concerns about government expenditure. Housing and personal borrowing are moving away from occupying a central position in policy making.
Where does that leave the mortgage market? House price increases are moderating, but the underlying volumes of housing transactions do not seem likely to fall; the remortgage market may ease a bit because the differential between past fixed rates and current fixes may not be so immediately attractive; and marginal borrowers will have to rein back or risk arrears as rates rise.
But given the better underlying tone to economic growth and the receding fears of unemployment, this looks like a market ending with a whimper, not a bang. Painfully, it may be the lenders running out of returns and capital, rather than the borrowers pleading for mercy, that call the end to this particular market.
How soon Basle II?