Ippr Report merged

[koala_bear]

http://www.ippr.org.uk/pressreleases/?id=4489

The most sensible thing I have seen written in a long time.

Press release:

Government must act to stop future housing market bubble

Mortgages should be capped at 90 per cent of property values and at a maximum of three-and-a-half times household income, according to a new report published today by IPPR.

The new report recommends caps on ‘loan-to-value’ and ‘loan-to-income’ ratios to help stop another housing bubble building up in the future. The UK has had four housing bubbles in the last 40 years, causing widespread damage to the economy.

IPPR’s report shows the UK has had the highest loan-to-value ratio of any OECD country before the crisis other than the Netherlands and says this was one of the main causes of the credit crunch. The report argues that the UK's 'addiction to house price inflation' is bad for the economy and that a central plank of government economic policy should be to ensure that there is greater stability in house prices.

IPPR's report identifies loose mortgage lending as the primary cause of Britain's recent house price boom. The report argues that although the UK has a long term undersupply of houses, and needs to build more homes at a much higher rate, the availability of cheap credit exacerbated the damaging volatility in the housing market.

IPPR says the government and regulators should hold firm against lobbying by the financial services sector, and that the Financial Services Authority (FSA) should recommend ‘loan to value’ and ‘loan to income’ caps in its current Mortgage Market Review.

The report also argues that deposit requirements on buy-to-let mortgages should be raised and that lenders should ensure that rents cover repayments. IPPR wants to deter small-time speculators from seeking excessive capital gains from the buy-to-let market, since this activity feeds housing bubbles.

The report also calls for tighter control on residential lending from non-banks and says they should only be allowed to operate in the UK mortgage market if they meet comparable reserve requirements to those demanded of banks.

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 George Osborne should go further and make it an explicit policy objective. We need tougher mortgage market regulation from the FSA, especially caps on ‘loan-to-value’ and ‘loan-to-income’ ratios.

'The UK has the lowest level of institutional investment in private rented housing in Europe. We should be encouraging institutional investors to ‘build-to-let’ while discouraging individual property speculators using buy-to-let mortgages which can artificially inflate our housing market.'

The report shows that UK households have more mortgage debt, relative to their income, than households in any other major economy. The report says mortgage finance is the major component of UK household debt. It shows that almost all of the increase in household indebtedness in the UK has been as a result of more mortgage borrowing. At the end of 2009, the UK household sector had debts totalling £1.53 trillion, of which £1.19 trillion (78 per cent) was secured on dwellings.

Ten per cent of UK owner-occupier mortgages – 1 million UK households - were in negative equity in the spring of 2009, when house prices were around 20 per cent below their peak.

The UK has the highest levels of mortgage lending as a percentage of GDP – 81 per cent – higher than the United States (73 per cent), Canada (49 per cent) and Western Europe (44 per cent) – as well as the highest levels of household and business debt relative to GDP.

The report shows that there have been four housing bubbles in the last 40 years: one in the early 1970s, a smaller one in the late 1970s, and those in the late 1980s and in the mid-2000s. It shows that house prices trebled between 1996 and 2006, rising 12 per cent a year. Even over the last decade, the average house price has risen from £84,000 to £162,000, representing a 7 per cent annual increase between 2000–2010.

Notes to editors

Download Forever Blowing Bubbles? Housing’s role in the UK economy.

Under IPPR’s proposal, a mortgage of no more than £90,000 could be lent to buy a home worth £100,000 and a couple each earning £25,000 could borrow no more than £175,000.

YouGov polling from Shelter shows that first-time buyers support stronger mortgage regulation despite the fact it will stop some people getting a mortgage. See: http://england.shelter.org.uk/news/may_2011/first_time_buyers_back_tough_mortgage_rules

Find out more about IPPR's project 'Housing policy: a fundamental review'.

[exiges]

Mortgages should be capped at 90 per cent of property values and at a maximum of three-and-a-half times household income, according to a new report published today by IPPR.

So simple, so obvious, so true and yet you know it'll never ever happen.

[Normal]

a couple each earning £25,000 could borrow no more than £175,000.

6* main wage earner and 1*partner's?

Really?

[exiges]

3.5x combined earnings doesn't seem very clever.

Women have kids. Fact.

[porca misèria]

3.5x combined earnings doesn't seem very clever.

Women have kids. Fact.

So, just fine for older borrowers or single-sex households

Oh, wait ...

[inflating]

The rules aren't anything like strict enough, that's why we're all here.

[Pent Up]

What strict mortgage lending rules? I was offered 4.5 x joint salary this time last year and 95% deals never went away.

We need stricter rules. The FSAs MMR review is good step forward but unfortunately lobbying from banks and the CML amongst over VI bastards put a stop to that.

[winkie]

6* main wage earner and 1*partner's?

Really?

Yes.......Cue Eric.

[Riedquat]

What strict mortgage lending rules? I was offered 4.5 x joint salary this time last year and 95% deals never went away.

We need stricter rules. The FSAs MMR review is good step forward but unfortunately lobbying from banks and the CML amongst over VI bastards put a stop to that.

4.5x salary doesn't seem too bad to be honest. 3x was always a pretty low point. 95% is way too high though.

Edit: Just realised that you said 4.5x joint.

Edited May 31, 2011 by Riedquat

[Tired of Waiting]

(...) Mortgages should be capped at 90 per cent of property values and at a maximum of three-and-a-half times household income (...)

Exactly.

These 2 measures alone would probably have prevented most of the last decade problems, and most of the next decades pains.

The bleeding fecking morons. Or b@stards. Or both! :angry:

[Tired of Waiting]

So simple, so obvious, so true and yet you know it'll never ever happen.

You are probably right, but I still have a little hope. The government knows that we are in a bubble, they do understand the economics of it, and how negative this is. Their problem is the political support for high house prices from property owners - the majority of the population, and vast majority of voters.

But the government does know that prices are too high, and must come down, eventually. I guess they just don't want to be blamed for it.

Too late though. They should have allowed prices to fall soon after their election, and put the blame in its correct place: Labour.

[Pent Up]

4.5x salary doesn't seem too bad to be honest. 3x was always a pretty low point. 95% is way too high though.

Edit: Just realised that you said 4.5x joint.

The repayments would be more than we could comfortably afford if we actually did borrow that much.

[John The Pessimist]

3.5x combined earnings doesn't seem very clever.

Women have kids. Fact.

Well now it's have kids or have a house.........

[winkie]

Well now it's have kids or have a house.........

...or buy bunk beds....a little bit of tough is good for the character, helps with empathy, team work and consideration of others...spoilt kids make for spoilt entitled adults.

[Tired of Waiting]

...or buy bunk beds....a little bit of tough is good for the character, helps with empathy, team work and consideration of others...spoilt kids make for spoilt entitled adults.

Thank makes a lot of sense actually.

Thanks for that winkie.

I'll think about it. We may be waiting too long to start a family.

[Democorruptcy]

3.5x combined earnings doesn't seem very clever.

Women have kids. Fact.

Perhaps you should be thinking about opening a childcare business?

Women used to have the choice not to work but now they are slaves to childcare costs to keep bankers in clover via more mortgage interest.

[koala_bear]

Just had the time to look a the full report:

http://www.ippr.org....les+May2011.pdf

It is a complete bear fest with plenty of nice facts, figures and quotes and well worht a read - it could have been written by HPCers

Quote for Eric to enjoy

Although smaller than in the United States, UK subprime is larger than in any other advanced economy. According to analysis by Lea, subprime accounted for 5 per cent of mortgages in Canada, less than 2 percent in Australia and negligible proportions elsewhere, notably mainland Europe. The UK had 'a significant share of subprime lending', peaking at 8 per cent of mortgages in 2006 (Lea 2010, IMF 2011).

Riskier, and previously niche, mortgage products designed to stretch affordability also exploded in size. By 2007, half of all mortgages had no income verification and a third were interest only (FSA 2009). The 'vast majority' of interest-only lending had no vehicle to repay the capital of the loan specified. A fifth of all mortgages advanced in 2007 extended into retirement (FSA 2010).

I thought Gordon saviour of the universe said there was "no sub-prime in the UK"

Edited May 31, 2011 by koala_bear

[Tired of Waiting]

(...)

I thought Gordon saviour of the universe said there was "no sub-prime in the UK"

Really? Did he say that? I don't remember that. Oh please try to find a link to it. It will be priceless. Please!

EDIT: I've found it, I've found it!

http://blogs.ft.com/westminster/2008/10/gordon-brown-believes-there-are-no-sub-prime-loans-in-the-uk/

.

Edited May 31, 2011 by Tired of Waiting