Although things are starting to improve for home owners, house prices were hit hard at the start of the present economic crisis. These falling prices meant that numbers of secured loan providers either reduced their lending or pulled out of it altogether fro the time being. When house prices start to fall this has a direct effect on those people who want to move. It is more difficult to get somewhere else to live if the price of your existing property has fallen significantly because that in turn makes it harder to afford a move.

When house prices fall, the people that it hits most are those of retirement age and older who may be looking to move to a smaller property. If the value of their existing property is significantly devalued then this often means that they have to remain where they are until there are signs of recovery in the market.

The fall in house prices has several knock on effects, not least the fact that lenders are less likely to give secured loans because when house prices fall the equity in a home also decreases, which means that the security for the loan starts to lose value. When your equity goes down then borrowing is much more difficult; it doesn’t matter how much your original mortgage was, a lender will only allow you to borrow up to the current market value of your property. When secured loans are hard to come by, then this has an across the board effect on lending and this has a further knock on effect on spending, all of which is not good news for the economy.
 

For true, economic recovery, consumer confidence and spending needs to increase. When house prices fall and there is a drop in the number of home owner loans available, then consumer confidence is shaken and people simply stop spending. When the economy is bad, the cutback in spending is not restricted to home owners; it has an effect on everyone. When house prices rise, people tend to feel that they are better off, and when they fall then the opposite seems to be the case and people make cutbacks, particularly on luxury goods.

There are those people who feel that the drop in the number of secured loans available is no bad thing as it may help to curb our excessive spending habits, especially when national borrowing is at an all time high. Even though high levels of borrowing may seem risky, it is also the case that they are needed by the economy. The economy is largely based on lending and so a cut back on secured lending is not good news for the national economy.

Although current news tends to suggest that house prices are now back on the up, both borrowers and lenders seem to have lost faith in the market and despite government efforts to persuade lenders to start lending again, there is still reluctance for them to increase secured loans.