Sean O'Grady: Hooray! House prices are falling again

The housing bubble is over. Good. Perhaps now we can stop thinking about property as a pension scheme, drop the delusion that house prices only ever rise, and liberate middle class dinner parties from the tyranny of conversations about how much everyone's house has gone up in value and what the place next door went for. Gazumping and gazerundering can be forgotten. First-time buyers can walk into estate agents without fear of mockery. Those overpriced but luxurious city centre "regeneration" flats will soon be suddenly affordable to young buyers.

That is, if they can find someone to give them a mortgage, which is the root of the current malaise. The credit crisis means banks simply won't lend unless you've got a decent deposit and rock solid credentials. No "sub primes" – people who really can't afford the mortgage anyway – need apply. Even in the US the "Ninja" loan (No Income, No Job, No Assets") has been consigned to the financial history books.

But what's so bad about that? The people who suffer most from a fall in property values are those about to step off the housing ladder into a golden retirement. Chances are they've had two or three booms under their belts already, and a 1 per cent drop this year over last isn't going to take much out of their pension funds. If you're in work and can afford the repayments, negative equity is a purely theoretical phenomenon. True, you may find it more difficult to move house, which can be inconvenient, but that is not the same as the agony of repossession.

Repossessions and arrears are on the up, but from a very low level indeed. Besides, even if prices "plunge" by 30 per cent, they'll only be back where they were in 2006. Many people in this country have paid off their mortgages, and the rest have plenty of equity in their homes. Not so bad.

There's a bigger point there, though. Listening to a Radio Five phone-in on the great housing crash with Victoria Derbyshire the other morning – as reliable a piece of qualitative research into the psychology of the British public as any – I heard one caller bleat about the painful sacrifices he was making to help his children buy a place of their own. The offspring were aged, I think, 19 and 21, and at university.

Yet I don't think this is such an unusual mindset. Everyone seems to think it's their human right to buy a property, and it isn't. Agreed, it is true that getting on the property ladder is a good idea, but there really needn't be quite such a hurry or panic about it. Especially if that hurry results in individuals borrowing more than they can afford and placing themselves in danger of bankruptcy at the first stumble in house prices and putting the wider economy at risk of a very nasty rebalancing (as we are seeing).

No one wants to go back to the world that existed up to the 1970s, where the building societies and banks rationed mortgages, and a Masonic relationship with the local manager was the most reliable way of owning a place of your own. Older readers may recall a time when newlyweds thought it not unusual to live with their parents for a time, which must have been odd. However, there is a good deal to be said for saving up for a deposit of 5 or 10 per cent: In which case you can get a mortgage, even now.

The fact that 5 or 10 per cent of the value of a first home is many times higher than it was for a previous generation is neither here nor there, because the mortgage will also be correspondingly higher and more difficult to service. The point is that saving up for years proves – to you and to your lender – that you can afford to take on the debt, in good times and bad.

That, indeed, was the way the building societies originated, as local clubs in the 19th century, centred on saving as much as lending. Sadly denuded in number, they have also lost a good deal of that old-fashioned prudent ethos. You, like me, may wonder how much healthier the economic scene might be today if Northern Rock had carried on as a medium-sized building society instead of reinventing itself as the thrusting, innovative – and ultimately bust – bank it became. Skipping essential real-world tests of financial competence gave us the 100, 125 and 140 per cent mortgage, devices virtually designed to create negative equity, bankruptcy and misery.

This week the Governor of the Bank of England, Mervyn King, said that he thought it would be "a serious mistake to go back to where the mortgage market was a year ago" and it was these crazy loans he had in mind. He was right. Hopefully, "sub-prime" borrowers will now be replaced by a new generation of careful, thrifty homeowners on manageable mortgages. They will do well out of the next boom.

s.o'ogrady@independent.co.uk

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