UK banks should continue imposing their tough mortgage lending criteria to help prevent another home price bubble in the future, according to the Institute for Public Policy Research (IPPR).
The group also argued that mortgages should be limited at 90 percent of a property’s value, while borrowing should be capped at 3.5 times the borrower’s income.
IPPR said the UK has experienced four housing bubbles in the past four decades, which have caused major damage to the economy.
It blamed the latest house price surge, which saw property values triple between 1996 and 2006, on easy mortgage lending, stressing that prior to the credit crunch, the UK had the highest average loan-to-value (LTV) ratio among all OECD countries, apart from the Netherlands.
The group noted that, at 81 percent, the UK also has the highest level of mortgage lending as a percentage of gross domestic product (GDP), compared with 73 percent in the US and 44 percent across Western Europe.
“Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems. We must learn the lessons from this economic history,” said Nick Pearce, IPPR Director.
“A central plank of economic policy should be to target moderate increases in house prices, rather than allowing runaway house price inflation which is always damaging in the long run.”
“The Housing Minister, Grant Shapps, has tentatively floated the idea of aiming for house price stability but he and George Osborne should go further and make it an explicit policy objective.”
To contact the journalist, you may send your message to editor@propertyguru.com.sg