The Institute for Public Policy Research (IPPR) has called for mandatory controls on mortgage lending in order to avoid a repeat of the housing bubble that preceded the economic crisis.
The left-leaning think-tank argues that the irresponsibility of several key mortgage lenders precipitated the credit crunch. The paper The Madness of Mortgage Lenders: Housing Finance and the Financial Crisis names Northern Rock, Alliance and Leicester and Bradford and Bingley as the key culprits.
The introduction to the report, part of a series on ‘Tomorrow’s Capitalism’, argues that the collapse of the housing market owes “a great deal to the reckless lending behaviour of a number of mortgage lenders, particularly the demutualised lenders … who were driven by highly incentivised senior executives in a drive for market share and expansion.”
It adds that these groups abandoned the “principles of sound lending” and failed to learn from the disastrous boom and bust economics of the late 1980s and early 1990s.
The paper warns that without “strong government or regulatory intervention” lenders are set to repeat these mistakes again.
Key proposals put forward by Professor Chris Hamnett, the author of the study, include an end to 100 per cent mortgages, with a 5 per cent deposit required on all home purchases, and a limit on house price-income ratios to 3.5 times joint incomes. The paper also calls for buy-to-let mortgages to be restricted to 75% of property value and for lenders to submit a bi-annual report to the Financial Services Authority on their lending habits.
