It's been a long running dispute. Do you put your money into property, shares, or simply a high interest bank account. Apparently all the smart-money has been going into property, which I guess has contributed to hugely over-inflated house prices and a distinct lack of housing for people who want to buy.

Now I've been sitting here looking at the price of my house, which apparently has increased in value by 2.5x in the last 8 years - and I simply don't believe it.

Let's just say for the sake of argument you have a property that's valued at £400k, going by normal calculations (3.5x salary) that would require a salary of £115k in order to get a full mortgage.

Now, you look around the estate and all 150 houses are in the £300k-£450k range, where exactly are we going to get 150 people with salaries in that bracket. Simply not happening, which means that you're limited to people who already have equity.

Now, take the 200,000 people per year who are leaving the country. I appreciate there will be a mix of people here, but something tells me that a fair few will be going to Canada, America and Australia. Which means that they will be relatively skilled and not too badly off .. (not to mention all the people buying properties abroad and retiring there)

This has "got" to deplete the sources of people with equity, so surely we're going to run out of people in this "top-band"?

If this is the case, the top band pricing is going to have to drop, in which case the next level will have to drop, and so on. So I've been waiting for the drop for some time, and I guess I'm still waiting, however ...

Northern Rock

Didn't think much of the announcement last week (that it had to refer to the Bank of England for cash) and indeed it wouldn't have worried me even if I had money there. However after watching the queues outside NR branches over the last few days - if I had money there, I'd be queuing too (at this point).

As I understand it, building societies take savings from people, and lend those savings to others to buy houses. (in the form of mortgages) They then get interest payments back from the house buyers, some of which goes back to the people with savings, and the rest goes to the building society as profit.

Generally, if they run short of cash, it's not a problem as the equity they effectively own in terms of secured mortgages should be more than enough to cover any shortfalls. So long of course the value of the property they've lent against is actually *still* worth the amount secured.

If on the other hand the value of houses has dropped substantially between the point the money was lent and the point where the value of the property needed to be realised, then the house buyers could end up with substantial amounts of negative equity. If these amounts are large enough, house buyers will simply file for bankrupcy leaving the building societies holding the bag.

So what happens ..

If NR have to either call in some mortgages or sell them on to other lenders in order to re-acquire cash to pay all the people who are now screaming for their money.

Well, the housing market is fairly flat anyway at the moment and you would expect other lender to want a bit if a discount to take properties of their hands .. so you can probably expect a re-valuation followed by a bit of a hit on each property for NR, yes?

Depending on how much NR have in terms of equity reserves, I'm guessing this might leave them short?

Not the end by any means ..

Trouble is that anyone who's bought a house in the last few years has probably paid massively over the odds, so there are probably *lots* of other building societies (and Banks!) out there who are probably rather more exposed than they want to be .. wanna put your money in their hands?

Interest!

Then of course, the more difficult it is to get "cash" (NR's initial problem) the more people with the cash are going to want to charge in terms of interest rates.

So for the last decade we've been floating on Gordon's economic raft, oblivious to the fact it's been carrying us way higher than we had any right to be. So now we're right at the top of the tank, there's only one way to go. The only question is, will the water drain away slowly, or will it instantaneously vanish, leaving us with a 100ft drop into the darkness ... !