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No more ‘Boom’ and ‘Pop’ in the housing market
Recent proclamations from the Institute for Public Policy Research (IPPR) could have implications for Census Financial home buyers, as well as the wider market.
The group said that banks and building societies should be banned from giving mortgages to borrowers with less than a 10% deposit. They believe that lenders should adhere to their rigorous mortgage lending criteria in order to help prevent a future house price bubble.
According to the IPPR, mortgages should be held at no more than 90% of a property's value. In addition, borrowers should not be allowed to secure more than 3.5 times their income. The group said that in each of the four housing bubbles the UK had experienced in the past 40 years, these two factors were the primary causes.
It has a point. The most recent house price boom saw property values treble between 1996 and 2006, driven by loose mortgage lending. It’s important to remember that before the credit crunch the UK had the highest average loan-to-value ratio out of all OECD countries, apart from the Netherlands. The UK also has the highest level of mortgage lending as a percentage of GDP at 81%, compared with 73% in the US and 44% across Western Europe. This meant that although the UK market had a long-term under-supply of housing, cheap, easy credit fuelled the property market.
The IPPR has called on the Government and the Financial Services Authority to recommend caps on mortgage lending, in terms of both the amount advanced as a proportion of the value of a property and the amount lent relative to a borrower's salary.
As a potential house buyer, what are the implications of these pronouncements for you? To find out, call the Census Financial property team on 028 9066 8700.