There is a certain air of smugness pervading the housing market at the moment, a touch of “here we are in 2006 and, see, the Great Housing Crash hasn’t happened”. It seems as if every estate agent, lender and commentator has evidence that the housing market is back on the up.

One of the latest sets of figures is from the Council of Mortgage Lenders (CML), whose members account for 98 per cent of mortgage lending. The December gross lending figure was £26.3 billion — 25 per cent more than the same month in 2004 and the strongest December figure on record. Strong though it is, this figure is still down 6 per cent on November’s record of £28.5 billion. The difference between the months in 2004 was much less, with lending at £21.7 billion in November and at £21 billion in December.

The CML figures also show that gross lending in 2005 was £287.5 billion, down just 1 per cent on the record £291.2 billion in 2004. So what does that tell us? Not just that the future for the housing market is looking solid for 2006, but perhaps also that along with those who are remortgaging — those with fixed-rate or discounted deals that have reached the end of their offer period — there are a lot of people who don’t watch the market closely but just browse the headlines, see that the market is “showing signs of recovery” (from the crash that didn’t happen, obviously) and suddenly think that they had best get moving and get on or up the ladder, for fear of being left behind.

It is that fear that drives the market: the property-owning culture in this country is mighty strong and is still relatively easy to join — with other people’s money, of course. A new BBC television programme, in the morning slot more usually occupied by house-buying listings, has cottoned on to the relative ease with which credit — and vast sums of it — can be obtained.

Called Beat the Bailiff, it is a real eye-opener on the enormous personal debt people can accumulate. One chap last week had racked up £100,000 on credit cards and loans and yet just could not seem to get his head round the fact that he had to pay it all back. He was in complete denial about the reality that the goods — including a rather lovely Bengal cat — did not belong to him but the lenders. His response seemed to be that this was his stuff and that the banks “had insurance” to cover his bills; if they were daft enough to give him money, then it was their own fault if he could not repay it. It is this head-in-the-sand approach that drives people to over-extend their borrowing, not just on plastic but also with mortgages.

The interest-only mortgage, for example, is increasing in popularity, despite the substantial risk involved — and you can see why. A person wanting to purchase a property for £150,000, say, with a 10 per cent deposit and a repayment mortgage on a rate of 4.5 per cent over 25 years, would be paying about £760 a month: interest-only on the same terms would be £506.

Because we seem to have lost the saving habit that earlier generations grew up with, many of us do not worry about what is going to happen in 25 years’ time, let alone in six months. If we can afford it now, then we will always be able to afford it — “because you can’t lose on property” — seems to be how many people think. But even if the rate on the interest-only loan went up half a per cent, those buyers would have to find another £60 a month. Were interest rates to rise to 6 per cent, the monthly payments suddenly become a far less appealing £675. Many people were burnt by endowment mortgages, which were interest-only mortgages under a different guise. They had the promise of free money at the end of the term: interest-only do not even have that carrot, illusory though it turned out to be, to dangle.

So far, though, no crash. But who knows what is around the corner? This week Otmar Issing, the European Central Bank’s chief economist, said that house prices in some eurozone countries were rising too quickly. “In some countries — Spain, Ireland, France, even Italy — house prices are on a trend which is not sustainable,” Issing told a meeting on global financial imbalances in London.

And this on the day that Noel Ahern, the Ireland Housing Minister, announced that the country was building a record number of homes — going up at a rate of 20 per 1,000 residents. He said that 80,957 houses had been completed last year, an increase of 5.2 per cent on 2004. “We are building more than double the amount of houses in 2005 than in 1997,” he said, adding that economic indicators also looked good for “the continuation of a strong level of housebuilding in the short to medium term”.

So onwards and upwards with mortgage lending and housebuilding. Hooray, the natural order is restored. But what happens if interest rates join that procession? If interest rates go up a couple of percentage points and house prices go down? Think it’ll never happen? Maybe not. But then who would have thought we would ever see a whale in the Thames?

catherine.riley@thetimes.co.uk

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