Something to think-tank about

Something to think-tank about

A think tank has called for a 90% cap on mortgage loan -to values (LTVs) at a maximum of three-and-a-half times household income to combat the UK's â addiction to house price inflation.  Interesting for several reasons.

To give you some background first The Institute for Public Policy Research (IPPR) published said report on 31 May in which it said that a cap on loose mortgage lending would help stop another housing bubble in the future.

It went on to say that the UK's addiction to house price inflation was bad for the economy and that a central plank of government economic policy should be to ensure that there is greater stability in house prices.

Wise words by and large.

No one wants a return to subprime lending but we do need lenders to relax a little when it comes to granting mortgages to sensible hardworking people. I know of a young couple a doctor and a lawyer who have never had a scrap of debt never defaulted on a mortgage repayment and have £100k in equity.  They put in an offer on a new home (due to relocation) only to find their mortgage company retract on the previously agreed LTV because of changes in the market.

With respect to the IPPR I think that we are some way off needing to urge banks to rein in their lending criteria.  Yes there has been a 50% increase in LTV products but we are still talking small numbers here (214 deals at my last count).

I therefore propose an alternative solution to the boom and bust property cycle. We simply increase the housing supply.

Kate Barker suggested this in her landmark review of 2004 and since then we have seen nothing but a steady decline in the supply of new homes.

In fact in the third quarter of 2010 planning permissions for new homes were at one of the lowest levels in the last five years and the second lowest of the last nineteen quarters. Right now the country has a housing shortfall estimated to a million homes but shockingly - last year the number of new homes built was at its lowest level since 1923.

Much of this can be put down to the change in Government and subsequent disarray in planning procedures after Communities Secretary Eric Pickles announced a radical change of planning policy. It needed changing yes. But it needed changing faster than this.

If there aren't enough homes to house our ever growing population we will soon return to a sellers market.  And with more and more people chasing fewer and fewer houses there is only one way the price is going to go. Up and I don't need a think tank to tell me what all this means.  And neither do you  I suspect.

Sue Warwick National Sales & Marketing Director - Miller Homes