If low interest rates were instrumental then why were there not similar hikes in the 60′s.

The fact that house prices are rising faster than earnings discounts your first point.

Consumer confidence does not really enter the equation – there is more of a scramble to get on the ladder as everyone needs a roof over their heads.

The simple fact is that – in a market where purchases are made on credit and the goods are a necessity rather than a luxury – price is dictated by how much institutions lend.

In simple logic the causal link is as follows: -

one ‘buyer’ is offered an affordable mortgage at say 3 times salary

a second ‘buyer’ is offered an unaffordable mortgage at 4 times salary but accepts the increased debt in order to get ‘a foot on the ladder’.

The first buyer also wants a ‘foot on the ladder’ so goes to another agency and manages to get 5 times salary.

The demand for the house has not gone up – there are still 2 buyers – but the price has risen by 40% because institutions are lending recklessly.

The only thing that stops this reckless lending is ‘moral hazard’. i.e. people default in payments and institutions are left out of pocket.

As has now been proved, however, the government will not let these institutions fail and bails them out – giving them further incentives to lend too much money as they cannot lose.

As to the winners and losers: -

Winners – institutions who receive massive amounts of extra interest over a 25 year period by artificially inflating house prices. They are laughing all the way to their own bank.

Winners – those people rich enough to have mulitple properties and who are able to sell off additional housing when the market is in the ascendency.

Losers – the people who buy the excessively priced housing pay massive amounts of extra interest over prolongued periods especially when they encouraged to remortgage on an annual basis so that they can have the holiday they always dreamed of (and then end up paying for it over 25 years). In addition these people then contribute to the bail out of the institions who should not have lent them the money in the first place. Double whammy then for the poor home owner!!

Of course the slick PR around financial institutions is very good at maintaining the illusion that the average person continues to benefit from an increase in house prices. Any logical review, however, shows that, as house prices rise, the man in the street merely becomes more indebted.

If you doubt any of the above logic then ask yourself a simple question: -

If the most you could borrow was 3 times your salary what would happen to house prices?