It is becoming increasingly clear that the UK's housing boom wasn't caused by a lack of supply and heightened demand, but rather by slack lending practices by the banks. The proof can be seen now that cheap credit has been taken away and house prices have almost immediately started to drop.
The question this makes me ask is what would happen if there were no mortgages? Presumably houses would be cheaper, essentially costing whatever they cost to build plus some kind of profit for the builder. And wouldn't we all be richer, since we wouldn't need to service such big debts? OK, we'd all have to save up some money to buy a place, but this would be easier since renting would also be cheaper, given that landlords would have a smaller outlay to buy a place and hence would be happy with a lower rent to still get a decent return.
OK, this is all something of a simplification of the economics, but it sure seems like things would be better. I can foresee a few problems. Banks would have to start lending money to other people, since their whole business model requires them to lend money in order to make a profit, but then they could be providing finance to companies who actually generate wealth, rather than to pay for some bricks and mortar.
And even if we wanted to get to this Utopia, we wouldn't want to start from where we are. There'd be a lot of unhappy people with mortgages who would see the value of their houses plummet (me included).
So it might not work, but there seems to be something fundamentally wrong with the current situation. We have got progressively richer but as we have, house prices have increased in line with our increased wealth, thus swallowing up any extra cash. Where's the sense in that? Wasn't the idea that we'd get wealthier so that we didn't have to work so hard?