Calls For 90 Per Cent Cap On Loans
In recent months, we have started to see a slight return of high loan to value products in the home owner loan sector, many of which have been aimed at first timer buyers in an attempt to help them get onto the housing market with an affordable loan.
However, whilst most people are encouraging high loan to value loan deals and welcoming the relaxation of lending criteria from banks and building societies, one think tank has suggested that there should be a cap placed on maximum loan to value as well as income multiples.
The Institute for Public Policy Research (IPPR) has called for a maximum of 90 per cent loan to value across the home owner loan and mortgage market, as well as suggesting that loan applicants should not be allowed to borrow any more than 3.5 times their joint income.
The IPPR claim that taking this course of action would help to stop the UK’s “addiction to house price inflation” by slowing house price growth and avoiding another housing bubble at some point in the future.
It has also been suggested that by placing a cap on home owner loan lending in this manner, it will make home owner loans more affordable for borrowers in the long term and mean that people are not stretching themselves too far with their home owner loan, just to get the house they want.
The IPPR have said that one of the biggest reasons behind the recent credit crunch was due to irresponsible borrowing in the past and lenders offering loans to customers which they had no realistic way of being able to afford in the long term.
Nick Pearce of the IPPR 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.”
