Mortgages are a tricky subject for the British. Between the near obsession with home ownership and the disproportionate economic influence of property prices resulting from it, anything that threatens to curb lending is apt to raise a storm of protest.
The Financial Services Authority's efforts to put "common sense" back into the mortgage market are a case in point. The proposals published yesterday appear almost laughably obvious. Does it really take a watch-dog to rule that mortgages should only be agreed "when there is a reasonable expectation that the customer can repay"? Or that an assessment of what the borrower can afford should take into account the possibility that interest rates might rise or that house prices might not? Sadly, judging by the runaway lending that preceded the financial crisis, it most certainly does.
If the FSA's shake-up proceeds as planned, by 2013 all potential borrowers will be asked to prove their income, rather than simply making an unsubstantiated statement. And, although lenders will not have to comb through every detail of household outgoings, major commitments such as heating bills must be taken into account. Furthermore, interest-only mortgages will only be allowed when the borrower has a decent plan to repay the capital, rather than simply relying on rising property values.
All are sensible measures, and scaremongering about a million unsuccessful mortgage applications, a drag on house prices and a £3bn hit to the economy should be ignored. Within reason – and the FSA's plans are entirely reasonable – a more sober property market would be a good thing.
In the aftermath of the severest financial crisis in decades, precipitated by a housing bubble fuelled by ludicrously lax mortgage deals, the case for maintaining the status quo cannot conscionably be made. Reinflating the same bubble will not resolve the situation. Nor will it protect over-extended buyers from the trauma of default and repossession. We simply cannot continue to chase the fantasy of home ownership at the expense of economic stability. The FSA is right: it is time for some common sense.
- More about: