is there anyone out there?Baltimore madnessHard to believe, but back in the heady days of the internet bubble, Baltimore Technologies was briefly a member of the FTSE 100 with a stock market value of more than £5.5bn. Money has been too cheap and too plentiful for too long.That’s what Michael Howard, leader of the Opposition, must be privately hoping, anyway. Forget Iraq, top-up fees, immigration and the rest, elections are much more likely to be won and lost on the health of the economy and, on this front, the housing market has become Labour’s biggest Achilles heel Housing has sustained the UK economy for four years now. My own view is that there is a good deal more inflationary pressure building up in the world economy than the “experts” think, and that eventually this will require rather steeper interest rate rises than generally anticipated.

So in later years mortgage payments will absorb a greater proportion of the borrower’s income than if inflation was high. For most borrowers, the real proportion of income absorbed across the lifetime of the mortgage won’t be lower than it ever was.Speculative bubbles don’t tend to deflate of their own accord. Something generally comes along to puncture them, and right now it is admittedly quite hard to know what the giant pricking pin might be. Unfortunately, the affordability argument is largely illusion Here’s why.Interest rates are not that low in real terms. Initial interest payments may seem low in relation to income right now, but because inflation is also low it will not erode the real value of the debt in relation to income as rapidly as it has done in the past.

The rising ratio is often justified because of the greater affordability of housing. The prospect of lowish interest rates and unemployment into the foreseeable future makes people more willing to take on greater levels of debt. Rents are generally falling, because of the glut of buy-to-let property coming onto the market, but prices are still rising. That cannot be right.The other reason is the continued rise in house prices relative to income, a ratio now at a record 5.3 times average earnings, according to Britain’s largest mortgage lender, HBOS.