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It is beginning to look more and more likely that a house price crash is looming here in the UK and it would seem that the culprit, surprisingly, is not the US sub-prime market. Admittedly the US has played its part but the culprit here is the legion of people in the UK buying to let. Or more specifically the people who have been ramping up the property market but have now suddenly stopped buying-to-let.

Demand has been killed off by the interest rate rises of the Bank of England that since 2003 have gradually (and since 2006 rapidly) increased the cost of borrowing. Now ‘it simply is not worth subsidising your tenant in the vain hope of capital gains after thirteen years of incredible rises.’ Put another way, the overvaluation in the market has become so obvious that people are no longer willing to ignore it but are waiting for the market to correct itself.

It is a simple economic maxim that when demand falls so will prices, especially if those prices have been artificially inflated by rampant speculation. The higher they have been the further they have to fall and according to The Economist, ‘the global housing bubble has been the biggest asset bubble in history’.

Oh dear.

The effect of this house price crash will vary from region to region. In Northern Ireland house prices rose 400% in about twelve years which puts them in line for the largest fall, although London will also suffer. The City, usually London’s life raft in times of minor economic difficulty is having its own serious problems. Those same buy-to-letters who just a year ago were optimistically buying are now returning to the market hoping to offload what could soon turn into millstones around their necks. Increasing supply in the market forces prices even lower and so the cycle goes on.

In 1997 Gordon Brown, as Chancellor of the Exchequer, promised an end to the times of boom and bust. It seems he may have been promoted just in time to eat his words.

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The strength of the pound against the dollar recently has seen many Brits heading across the Atlantic to claim the many bargains available to high street shoppers. Less well known, but growing in popularity, is the possibility of taking out foreign currency loans, especially dollar mortgages, and using currency speculation to significantly reduce the amount of the loan over time.

‘Holding a loan in a falling currency can help to reduce the outstanding debt by thousands of pounds in just a few months.’ These loans are usually arranged so that only the interest is covered by the repayments while the total is gradually reduced by fluctuations in the currency markets.

The attraction of this kind of loan is, therefore, obvious. The major drawback should, however, also be obvious; the high risk inherent in betting on a fluctuating market. Currencies can move in either direction and rather than decreasing the size of your loan, it could increase substantially.

Mike Boles at Savills Private Finance, a broker, said: “We have had more interest in foreign-currency products in the last six months from people who think they can benefit from currency movements and lower interest rates abroad. However, when the risks are explained, most decide against it.”

Risk is an integral part of many speculations where it is managed and minimised as appropriate and this takes a certain amount of dispassionate calculation. When it comes to people’s homes, however, they are just not willing to do this. A home is not a speculation but an investment and decisions need to be taken accordingly. For many people risk should not just be minimised when it comes to their home but be absent altogether.

The risk involved in foreign currency loans does not mean that they should be avoided entirely, but they should certainly be approached with a great deal of caution. I would suggest that they are of more relevance with second houses, which can be treated as a speculation and will tolerate a greater degree of risk. For a primary dwelling, the family home, risk is just simply unacceptable and so foreign currency mortgages are to be avoided.