« Back to Index

House Prices

November 2006

With the credit industry, being the most successful money-maker the world has ever known, we are not likely to see house prices subside, unless the whole monetary system is radically changed.

The reason is this. House prices have risen because it is so easy to obtain credit. We can afford to pay almost unlimited sums of money to buy what we want.

Which means that we can out bid each for a home. We also know that access to cheap credit will always be with us, so that it is safe to pay over the odds for a home, because we shall always be able to sell at an even higher price.

Whatever the pundits predict, we know we can ignore them, because the credit industry is such a winner. It is here to stay.

Who cares if we sink ever deeper into debt, you can always sell your debt at a profit. No one will explain to anyone, that because credit is not included in calculations of inflation, we can spend unlimited quantities of credit on houses, without impinging on the inflation rate. The banks calculate the rate at which they issue new money as credit, by measuring the inflation rate. If inflation rises, the banks dampen down by increasing interest rates, which discourages the use of credit.

If inflation falls or goes into deflation, then interest rates are lowered to encourage the use of credit.

If the interest on your mortgage fell to zero, it will be much easier to buy a home, and house prices with rise even higher.

The trick is to keep the cost of a roof over your head out of calculations made for the inflation rate.

And provided nobody explains this to anybody, and it is safely ignored, we have a stable economy with no booms or busts and we flourish and prosper as we count the trillions of pounds we owe the banks.

No problem to us or to the banks, to owe them the whole world, provided we keep paying interest, which is easy and as long as interest rates are kept low enough to encourage further borrowing to pay the interest.

Therefore revel in your spending spree and remember you are not spending money you are only spending credit. Don't tell anyone and don't let anyone tell you

Doctor Edward C Hamlyn MBChB