Catch 22

Upon collapsing the housing market was caught in a “debilitating scissor effect” (Schwartz & Seabrooke 2009) that amplified its vulnerabilities to the financial contamination emanating from the banks. The truth hurt, as banks came clean about their exposure to the property market; the real mess because to appear on the balance sheets.

As banks lost further confidence in one and other, interbank credit markets became waste lands, no one was willing to step in and lend to anyone. Borrowing became more expensive because of lack of supply, and this meant mortgages rates soared.

Homeowners found themselves in a catch 22 scenario, with a house that was rapidly losing its value, and a mortgage debt that was ever growing, they couldn't justify selling but they also couldn't afford to keep it. In effect this trapped them in a spiral of having to use more and more of their take home pay simply to meet the repayment schedule of a house that is destroying their accumulated asset wealth as its price.

Schwartz, M & Seabrooke L. (2009). Boom and Crash: The Politics of Individual Subject Creation in the Most Recent British House Price Bubble. In: Shaw, T The Politics of Housing Booms and Busts. England: Palgrave Macmillan. 52-75.