Saturday, February 6, 2010
How much do you think a bank will lend someone who earns Â£30,000 a year? Maybe just over three times their income â€“ say Â£100,000? Or maybe they should stretch to Â£120,000, four times income. But what about Â£190,000? Nonsense, you'd say, that's 6.3 times earnings, and the borrower would default when interest rates rise. Yet that's what one bank is doing, having learned nothing from the orgy of easy lending that has left taxpayers across the world having to bail them out. Banks are still offering loans that will become toxic when rates rise. It's time to bring to an end a bank's freedom to set its own lending criteria. If we had banned anyone from taking on a loan for house purchase of more than 4x salary, house prices would never have reached their current unaffordable levels.