What is the value of a house? A year ago it may have been one figure but today it is very different. I have heard it said that news reports and commentators reporting the fall in values of property are making the market worse but those people were not saying anything when the market was being talked up and news reports were saying that house prices were rising at astonishing rates.

About eight years ago a friend who was saving very hard to buy a property found property prices were rising faster than she could save her deposit. She was a typical first time buyer and those first time buyers are at the heart of the property market. If the first time buyer could not buy then house prices should have stopped rising. The rapidly increasing house prices were leaving more and more first time buyers behind and there was no way an average person could get on the housing ladder.
We then had the era of easy credit with 100% mortgages and self certified mortgages and a surge in buy to let which opened the floodgates and new buyers poured into the house buying, and investing, market.

As I write this I hear the housing minister on the radio talking about helping first time buyers raise their deposits to help them buy a house and a year or two ago we heard the prime minister talking about helping first time buyers but all these plans do not solve the problem. A house price should reflect the market and if nobody can afford a house then that value is overpriced. The government can try to support an unrealistic price but ultimately that is doomed to fail unless they plan to support buyers forever.

The problem with the housing market is that hopes, expectations and easy credit raised prices far beyond the true market value of property. The sudden disappearance of no deposit and low deposit mortgages took a huge chunk of potential buyers out of the market which imediately reduced the numbers of first time buyers who could afford to buy with the obvious result that prices started to slide.
The housing market has to find it’s own level. Until buyers have the required deposits, which is no small matter at current house prices, and they can get mortgages for the property they want to buy, prices will stagnate or fall further. When buyers exceed sellers house prices will begin to rise again but everything suggests that prices will fall further before we get to that more stable position again and perhaps we would all be happier if house prices did remain stagnant for a few years so we could treat houses as homes rather than investments.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

There has been a lot of talk about the fact that savers are being poorly treated in the current financial climate. Interest rates have fallen to such an extent that those who have been cautious with their spending and have carefully saved all through their lives to provide for themselves in later life, now find themselves struggling thanks the low interest rates currently on offer.

This is not a new scenario. I remember, some years ago, commenting that for the first time in my experience interest rates on savings were actually higher than the inflation rate. For many years inflation had been higher than interest rates and though this was beneficial to house buyers, it was always bad for savers.

The repayments on mortgages would be devalued over the years and in the later years of the loan would have been devalued by inflation to such an extent that the payments were almost insignificant while the value of the property would have continued to rise, broadly in line with inflation.

It seems to be particularly irksome that the problems we are currently suffering have been brought on by excessive borrowing by governments, business and individuals. Those people who ‘did the right thing’ and saved to look after themselves are suffering so that those who did not can survive. It doesn’t seem right but that is the way of the world, like it or loath it.

In a financial climate where savings accounts offer tiny interest rates some may find it hard to support saving but it is important to recognise that with savings behind you, it is you that can make choices about your future. The alternative, where your life is funded by either loans or living hand to mouth, spending as soon as money comes in, leaves little room for flexibility.

Given the choice would you rather have some savings behind you, even though they pay little interest, or would you rather not have them.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

In an interesting development the The Unity Trust Bank , which I confess I was not previously even aware of, has decided to do away with the penalty charges so hated by customers.

The bank is a specialist bank for social enterprises, charities and trade unions and as such doesn’t appear to do much personal banking but this is a very positive signal to the other banks who should, now more than ever, demonstrate they actually care about their customers and are not in the business of ripping them off at every opportunity.

In a statement Unity say,”Unity Trust Bank is delighted to announce that it is the first bank in the UK to remove all penalty charges and interest on unauthorised overdrafts from the start of the New Year.”

Kevin Turmore, Managing Director of Unity, said:: “In the current economic climate, we do not believe that it makes good business sense to penalise those who may already be experiencing financial difficulties.”

Well thank goodness. Someone in the banking industry does have some common sense.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)