Mortgages Uncovered

Yale economist Robert Shiller, who forecast America’s property crash and the bursting of the dotcom bubble, is now warning Britain’s current homeowners that things are set to get as bad here as they are in the USA.

‘A lot of people say that in the UK we haven’t seen so many defaults on mortgages – but we’re just earlier in the cycle. These housing cycles go for a long time. Real estate markets are very different from liquid financial markets, in that they have a lot of momentum, and they continue in the same direction for a long time.’ He pointed out that during the last housing boom and bust, in the 1980s and early 1990s, prices in London more than doubled, in inflation-adjusted terms, ‘and then they came almost all the way back down again. That’s certainly a possibility now, and that would be huge. Think of all the balance-sheet problems that would cause, for banks and for households.’ Said Robert Shiller.
He went on to say that “Northern Rock was the first bank run since the 1860s. Once that happens, and you have these photographs of people lining up outside banks, there’s a shock to confidence, and a loss of trust in financial institutions,’

Robert Shiller was last week invited to Downing Street to share his critical analysis of the situation with Gordon Brown and Alistair Darling. He calls for better public financial education and newer more standardized mortgage products which can be adjusted to suit the changes that can often occur in borrowers’ personal circumstances.

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