Monday, May 11, 2009

Housing Bubble: Recommendations

IPPR calls for cap on mortgage lending

Strict new controls on mortgage lending are crucial if Britain is to avoid further house price bubbles in the future, a leading think tank with close links to the Government will say today. The Institute for Public Policy Research (IPPR) will argue that mortgage lenders must be made the subject of mandatory curbs on the scale of home loans if the country wants to avoid making the mistakes that lead to the credit crunch all over again.

Posted by alan @ 02:11 AM (983 views)
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7 thoughts on “Housing Bubble: Recommendations

  • But then how on earth would politicians be able to coin it on second home sales at the taxpayers’ expense?

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  • But will anyone listen? When the FSA earlier this year said they would cap lending at 3x’s loan to income there was an outcry from the VI’s oh and Hamish of course, and the CML said they were already at 3x’s. Halifax showed lending levels at peak nearly 6x’s but the CML had peak at 3.5 which of course is utter rubbish. Northern Rock and others continue to lend irresponsibly , Halifax has lending levels now at about 4.5 I believe. Historically I believe lending levels at every crash returns to the level it was prior to the crash so 3.5 would be about right I think. THE SOONER THE BETTER. I assume when lenders get their lending levels down to about 3.5 , CML will show lending ratios at about 1.5 !!

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  • I’m sure that Professor Hamnett means well but legislating against greed is futile, in my opinion. Better to force the banks to structure themselves such that they will be allowed to fail the next time they screw up rather than attempting to predict future market conditions. Nobody knows what will happen in the future; the call for mortgage rationing is implicitly founded upon guessing the future.

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  • Dear Professor Hamnett,

    Just a quick note: Speculators have more influence than God himself. We remember FSA recommending same thing but nothing happened so far.

    -a limit on house price-income ratios of possibly to 3.5 times joint incomes
    -a halt to self-certified mortgages which do not require documentary support
    -the restriction of buy-to-let mortgages to a maximum of 75% of property value.

    With regards to the latest restriction I would like to point out that such activity in the case of already built property is not recommended for our economy because the risk is almost non-existent when using 75% bank money. Investment (including buy to let) is welcome in building new homes and not by buying the existing housing stock to maintain the shortage at any price.

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  • This is an excellent report and I’d recommend HPC regulars download and read it:

    http://www.ippr.org.uk/members/download.asp?f=/ecomm/files/madness_of_mortgage_lenders_update.pdf&a=skip

    The time to bring in such measures is now, when they will make little difference to the market. It’s no good waiting until 100% mortgages are available again, because the vested interests will be strong enough to resist the move then.

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  • Apparently in Canada buyers must have a 20% deposit in order to get a mortgage. Buyers without the deposit can still get a mortgage, but they have to buy insurance which tends to be quite expensive. This model appears to have limited the bubble in Canada.

    I’d like to see that rule extended across the financial markets – minimum 20% deposit on all forms of leverage, whether it’s private equity buy-outs or trading shares on margin. I suppose it couldn’t work unless the rule was enforced globally.

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  • the haunted says:

    Stabe – Door – Bolted – Horse

    Make a sentence from those 4 words. However, in terms of going forward I am all for this. It will help maintin the current trend of price reduction and reduces the risk of some sort of “blip” if credit becomes availble in general again. Add to this the fact that mortgage rates are going up while we hhave record low interest rates and I think the recovery for housing could be a decadde or two off.

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