Toby’s been referencing Dickens in his recent blog post, so here goes with another policy lovers favourite cultural reference; the West Wing. The fictional US leader President Jed Bartlet was renowned for his economic expertise and prudence. But looking back now, he was, like most other people, somewhat optimistic about the state of the economy and about housing in particular. “Home-ownership levels are higher than they’ve ever been!” he would merrily retort at critics of his policies.
Sadly, the state of housing in the US has changed dramatically since the West Wing first aired. The sub-prime crash of 2007-08 was spectacular, triggering a global credit crisis. Assets plummeted almost overnight. The figures are overwhelming; millions of homes have been repossessed and millions more are in serious trouble. This has been a tragedy for many, many ordinary Americans. Serious failings in the financial markets were exposed (check out the excellent documentary ‘Inside Job’ for a good analysis of this). The administration (the real one that is, not the Bartlett one) have taken some bold steps to try and ease the home ownership crisis, including schemes to reduce mortgage payments down to affordable levels, a ‘rehab to rent’ programme to convert repossessed homes into affordable rented units, and potentially a homeowners bill of rights.
The sub-prime market in the UK was never quite as extreme as that in the US, but some practices spread across the pond and some lenders got drawn into pretty risky lending. Many of these outlying firms have now disappeared altogether. Reckless lending meant that some people were given loans they had no realistic hope of repaying, putting their homes at risk. It also had some damaging impacts on the housing market. Our new video shows some of the origins and effects of irresponsible lending in the UK:
So for us at Shelter, the case was pretty clear – put in place some sensible rules to stop lending spiralling out of control in the future. Check a borrower can afford their repayments. Make sure they earn what they say they do. See if they’ll be able to keep up with payments if interest rates creep up. Treat them fairly if they do get into trouble and fall behind. The Financial Services Authority, who regulate the mortgage market, have been reviewing mortgage regulation and after a long round of consultation come up with a fairly modest raft of new rules that both the consumer sector and the lending industry can agree on.
Financial regulation matters – not least because out of control housing markets have such an important impact on real people’s lives. It’s good news that both the US and UK governments are waking up to this.