Report Why No Loan-To-Value And Loan-To-Income Cap? in House prices and the economy Posted May 17, 2012 As we all know by now, house prices rising to silly levels basically screwed the world economy. So how come nobody in power is talking about the blindingly obvious step that would permanently sort the problem out? The obvious thing? A law setting a maximum cap on loan-to-value and loan-to-income. Houses are for living in, not speculating on. If the maximum anyone could pay for a house was limited to a maximum multiple of their income by law, it would be impossible for them to bid up house prices to the daft levels we've seen, which means they wouldn't get the banks, themselves and the whole world economy into the trouble we're in now. All the other proposals have been, to my way of thinking, just fluff. Separate retail from casino banking? A good idea, but it didn't help Northern Rock. You can still lend stupidly even if you just do retail banking. Greater capital requirements? That's just treating the symptoms and not the cause. It's a good idea in that it will insulate the bank from losses due to reposessions arising from higher unemployment in times of recession, but it's not going to solve the problem of lending too darn much to people who can't afford to pay it back. Perhaps the main reason is that the fools who think they can make a fast buck on rising house prices will get annoyed when they can't borrow way more than they can afford due to the government interfering in the market. I think however that when Greece finally does cause financial meltdown #2 there will be even greater public appetite for politicians to make sure this never happens again.