Mortgage regulation might not sound like the most exciting topic, but it’s vitally important. The way in which banks lend money has a huge impact on house prices, social mobility, even homelessness.
In recent years the devastating impact reckless lending can have on people’s lives has been all too clear. You have to borrow a lot of money to get a foot on the housing ladder and if you can’t afford to pay it back, you may face losing your home. The sub-prime crisis in the US goes to show how badly reckless lending can damage an economy too.
When the Financial Services Authority first suggested tighter mortgage lending rules there was an outcry from the banking industry, as well as from some housing developers and MPs. The city regulator was accused of ‘shutting the stable door after the horse has bolted’, its analysis called ‘fatally flawed’, its proposals ‘patronising’, ‘rigid’, ‘pernickety’, and ‘a step too far’.
Were the proposals ever that radical? To me, they felt like common sense. Check what someone earns before you lend them huge sums of money. Think about how they will afford it if circumstances change. And what’s more most first time buyers agree with me – three quarters believe banks must lend responsibly, despite the fact it will stop some people getting a mortgage.
With the latest in a long line of publications from the FSA on this issue, there has been a noticeable change in tone. Across the political spectrum there is now a wider recognition that overstretching into an unsustainable mortgage is not an entirely sensible move, and that banks need to have, as a minimum, some common sense rules on lending to stop things spinning out of control again. Coverage of the topic on Radio 4’s Today programme ended in an interesting debate about whether political fixation on homeownership was beneficial, or whether we needed instead a better rented offer for those who can’t afford to buy.
Regulation is rarely popular, but it’s good to see a shift in attitudes and a more sophisticated debate about our housing market developing. Now the FSA must press ahead with meaningful reform.