The real reason the housing market isn't moving

The weekend papers were full of misery for mortgage holders. "Lenders move goal posts" said The Telegraph ahead of a story about lenders going through contracts "with a fine-tooth comb", looking for ways to get rates up.

Manchester Building Society has, for example, found a way to decouple its tracker mortgages from the Bank Rate. Tracker rates for some clients will now hit 4.74%. For some of those clients, the move will represent a quadrupling in rates. They aren't the only ones: Skipton BS removed the 3% over-base-rate cap recently, quoting "exceptional circumstances". This seems fair given that we are indeed experiencing exceptional circumstances but nonetheless, I dare say it came as a shock to a good many borrowers.

The Observer had a similar story headlined "Mayday for borrowers." This one referred not to sneaky contract changes but to the fact that next week, the standard variable rate (SVR) rises announced by several lenders actually kick in.

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Halifax, Bank of Ireland, Clydesdale and Yorkshire banks are all putting up their rates on 1 May, as is the Co-op. The Times covered the same story but added in a few more depressing numbers: the averagetwo-year fixed rate has risen from 4.27% at the start of the year to 4.6% now. That adds an extra £500 a year to the cost of a £200,000 repayment mortgage.

Leah Milner also notes that the big price-rises announced by the Halifax and the like are not the end of it: "week by week, prices are creeping up and within the last seven days" she has countednine lenders who have put up rates. All in all, "over the coming months, more than a million borrowers' payments will rise by about £630."

If you think that the average holder of a £200,000 mortgage probably has a household income of say £45,000 (given the lax lending standards of the 2003-7 period), that's nearly 2% of their post-tax income. Nasty.

But apart from this individual misery, there is a wider point worth extrapolating from the numbers. There is much talk about the low level of volumes in the UK market and about how that is the thing that is keeping prices up. People, convinced their house is still worth a bubble number, won't sell at the new market price. So supply is crunched and prices have stayed higher than they should have. Soon, or so the story goes, sellers will blink and cut their prices properly, allowing volumes to rise and markets to clear.

But what if the reason people aren't moving isn't all about the price they can get for their house? What if it is all about the price they have to pay for a new mortgage on the next house they buy. The FSA has pointed out that the UK is home to hundreds of thousands of mortgage prisoners people who can't move because they can't get a new mortgage at all. They have too little equity or too low an income for our newly prudent mortgage lenders to touch with a bargepole.

However, you can be stuck without being a technical mortgage prisoner. Some mortgages are sold as being portable even if you move, you can take them with you. But this is never guaranteed: it is still effectively a new application and applicants have to meet the terms and conditions the lender has in place on the day.

Those T&Cs have changed significantly over the last few years. At the same time, falling house prices are likely to have pushed up most borrowers' loan to values (they owe more as a percentage of their house than they did a few years back).

That means that very few mortgages are likely to be genuinely portable. And that almost everyone moving house is going to have to get a new mortgage. For which read expensive mortgage. Move house and whatever the cost of your new house, your monthly payments are very likely to be higher than they were (and that's before we start on mortgage arrangement fees).

The point? The lack of volume in the market might not be about sellers not being able to cope with the price of houses but something that lies behind that sellers not being able to cope with the price of new credit.