SO the great crackdown on mortgages has started. With the Bank of
So the news that
Lloyds is limiting the size of mortgages to four times salaries for loans worth over £500k. The bank says this will affect about eight percent of its lending in
It goes without saying that lending needs to be much more prudent than it used to be, and it may well be that Lloyds' move is commercially sensible and thus to be applauded. It is vitally important that mortgages be properly stress-tested, and that means being able to cope with rates of five to seven per cent (even if the bank still believes they will peak at a much lower level).
But blanket rules are never a good idea: they tend to discriminate against those with more volatile income streams, for example. Prudence doesn't mean having to forgo judgement.
Given all of this, the government's daft Help to Buy scheme should be abolished immediately. Its contribution to rocketing prices has turned out to be much more limited than many expected, but it's still a terrible idea; and if banks are going to ration some mortgages, it makes no sense for the state to be subsidising others.
An analysis by
Only seven per cent (or 1,312) of the Help to Buy mortgages signed off in that 12-month period were for purchases in
While the popularity of Help to Buy has been growing, the total numbers remain small: there were £1.2k loans in the second quarter of last year, £4.2k in the third and £7.5k in the fourth, falling back to £6.5k in the first three months of this year. But the scheme was always high-risk and deeply misconceived; it should be scrapped with immediate effect.
The real problem, as I keep writing in this space, is fundamentally one of insufficient house-building. Of course, excessively low interest rates have helped make the problem worse, partly by increasing demand but also by keeping zombie borrowers on life support. The other big problem is that of mortgage prisoners: many people were able to borrow under the old, laxer rules but cannot now move, or at least not to a similar property. If they were to do so, they would never be able to raise a big enough mortgage. This is reducing the number of transactions. There are no easy solutions, but the authorities are making two big mistakes. They are still not doing enough to allow more housebuilding; and they are relying on rationing, rather than pricing, to control demand. We will come to regret both of these blunders.
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