How many times do I have to tell you?

The question of despair for many parents trying to get important messages about behaviour or danger to their offspring also be applies to adults and all those warnings in the small print. “Your home may be at risk…” is the standard wording in most advertising and documentation surrounding the mortgage industry.

Do people simply not read? No, they just refuse to believe it could happen to them and that is dangerous enough for the end consumer. What defies logic is that the very people who publish those warnings seem to pay such scant regard to the implications.

If a bank or mortgage company is warning people that individuals may not be able to keep up the payments, do they really believe it themselves?

What must be questioned is why traditional controls on mortgage lending were weakened? Why did the ratio between what was being lent and the income of the borrower drift so much? What checks were in place to verify the claims of the applicants as to their income and expenses or monitor other lines of debt they had run up?

One of the great strengths of the early days of motgage lending was the personal interview between a manager and the applicant, but it was conducted at a time of greater personal integrity. It is fair to argue that thanks to their upbringing (strongly influenced by religious codes), the majority of the population were more likely to display subtle signs of deceit if they tried to hoodwink the lender.

In the great gold rush of the property boom, madness was collective. Any manager feeling they should urge caution over a particular deal would be weighing that off against the figures they needed to achieve to make target and bonus. Anyway, prices were soaring so the mortgage company would be able to repossess and even turn more profit.

The delusion was so great that mortgages went above the purchase price of the property – why? Wasn’t that an admission that the borrower could not afford the deal, that they were too stretched to even do some repairs or slap on a coat of paint? Cashback was a way to pay off other debts, sucking in more high risk borrowers.

So have the lenders listened this time?

To a limited extent and possibly for a short period they have reacted in part. Higher deposits are being demanded and the earning ratios have been tightened – but not universally.

Government, lenders, householders and industry are desparately looking for signs that the bottom has been reached and that the good times will return. Various tricks have been worked to reverse the decline but the reality is that there is a limited market for house ownership – one defined by the income/expense ratio – and as the rest of the recession rolls on that real market is going to shrink.

Even in the middle income brackets where it would seem to have the greatest representation, that market shrinks with every layoff of well paid people. Not only are they out of the equation, but everyone who hears of their plight through personal contact or friend of friend, becomes more defensive.

What will this create? A market that drifts downward. One inhabited by wishful thinking and hype.

There is a central truth that will not go away: The housing market is still full of fictional money. The wealth was not earned and it has only existed in the upward spiral.

The most healthy option would be to get the agony over quickly. Clamp down on mortgage terms to what is sustainable and that would require looking at the employer’s prospects (that is not a spelling mistake) as well as other cedit worthiness.

Lenders would fight against the drop because they hope to get the best prices for the properties they have to repossess but that can only happen if there are other institutions willing to support purchases that still have fictional money in their pricing.

I would contend that this would be a case where common agreement rather than speculation could save the situation. If a figure of 25 per cent was accepted as the target reduction, then those waiting for the bottom of the market would know it had arrived.

Lenders could once again have confidence that they could pretty well recover the value of the loan if there was a default. Everyone else would know where they stood and we could start afresh, though how many more times will we need to be told there is no such thing as a free lunch.