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Thinktank Calls for Tough Mortgage Lending Criteria

by Sean Matthews

It’s hard to get a mortgage these days.  You only need to drop into a few consumer forums such as Money Saving Expert to see how much first time buyers and homeowners are struggling to secure a mortgage offer.  Since the credit crunch, mortgage lenders have reviewed their products, tightened their security checks, and made it impossible for a lot of people to step onto the property ladder.

However, a UK ‘thinktank’ has recommended that the banks keep their tough lending criteria in place to prevent another house price bubble building in the near future.

It’s been suggested by the Institute for Public Policy Research (IPPR) that mortgages should be capped at 90% and that customers should also be prevented from borrowing sums that are more than 3.5 times their annual income.

The Institute said there had been 4 separate occurrences of these ‘housing bubbles’ in the last 40 years and that each had caused damage to the economy on a wide scale.

The most recent house price boom, when property values trebled between 1996 and 2006, has been blamed and more specifically the loose lending criteria being used during that time.  In fact, prior to the credit crunch, the UK had the highest LTV (loan to value) ratio out of all OECD countries, except for the Netherlands.

The UK has the highest level of mortgage lending compared with the USA and the rest of Western Europe.  The group said that even though the UK had a deficiency in housing, the availability of cheap credit could cause the property market to become more volatile.

The IPPR has approached the Government and City regulator, the Financial Services Authority, asking them not to bow down to lobbying by the banking industry.  Instead, they want to see caps put on mortgage lending.  It also asked for mortgage deposits to be increased for buy-to-let properties to ensure that rental income was sufficient to pay mortgage repayments.

Nick Pearce, IPPR director, said: “Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems. We must learn the lessons from this economic history.

“A central plank of economic policy should be to target moderate increases in house prices, rather than allowing runaway house price inflation which is always damaging in the long run.

“The Housing Minister, Grant Shapps, has tentatively floated the idea of aiming for house price stability but he and (Chancellor) George Osborne should go further and make it an explicit policy objective.”

What do you think?  Time to toughen up even more and risk locking some first-time buyers out of the housing game for years to come, or time to loosen up a little?  Our previous article suggests things may be looking up and that the IPPR’s fears may be ignored.

Related posts:

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  2. 6 Million Brits Shun The Property Game
  3. Senior Mortgage Expert Advises Against Short-Term Fixed Mortgages
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