Secured Loans May Never Be The Same Again
Over the past couple of months there has been a more positive feel in the air with regards to economic recovery and the housing and homeowner loan markets in particular, as estate agents are reporting increased levels of interest from potential buyers and new lending on loans is increasing along with the total number of available mortgage products.
But a new report, published yesterday (11th May) has warned that a large amount of the blame for the current crisis within the financial sector lies with banks and building societies and their irresponsible lending attitudes in the recent past.
The report, written by Professor Chris Hamnett for the Institute of Public Policy Research (IPPR), which is entitled “The madness of mortgage lenders: housing finance and the financial crisis” (the title says it all really!), largely places the responsibility for the current housing and loan market collapse on lenders who have offered loans to individuals who could not realistically afford them and certain de-mutualised lenders (you all know which ones!) have come under the spotlight as being some of the worst culprits.
The report suggests that in the future there should be strict limits on lending criteria including, a cap on income multiples of 3.5 times salary, maximum loan to value ratios of 95 per cent, limits on the level of wholesale funding offered to lenders and a complete ban on self certification loans. Professor Hamnett acknowledges that whilst these moves would restrict the buying power for many, particularly first time buyers, in the long term it would save borrowers from negative equity and reduce the chances of them falling into arrears and bad debt situations on their loans.
He said “This is not the first such housing market down turn but what makes this slump different from previous ones is that it has been accompanied by, if not directly triggered by, the collapse or take over of de mutualised mortgage lenders who had expanded too rapidly during the preceding decade by offering very generous loan to value and loan to income ratios funded by short term borrowing on the wholesale money markets.”
