Vince Cable: Cap mortgage lending at 3.5 times income
Business secretary Vince Cable has said he is ‘appalled’ lenders continue to offer loans five times a mortgage applicant’s income.
Talking to the BBC, he said action must be taken to stop the ‘housing boom’ in parts of the UK getting “out of control, suggesting 3.5 time income should be the maximum.
It follows a report from e.surv confirming that mortgage lending has already dropped 19% since the start of the year but that borrowers and first-time buyers in particular have been stretching income multiples as average LTVs rose from 55% LTV in 2008 to 63% today.
His comments come ahead of the Chancellor’s Mansion House speech, in which he is expected to say how the Bank of England could tackle any financial instability caused by house price rises.
The latest figures from the Office for National Statistics (ONS) found prices rising at an annual rate of 17% in London, compared with 8% in the UK as a whole.
Mr Cable told the BBC: “In the short-run, the immediate problem is to stop this boom getting out of control.”
However, last week the Nationwide Building Society said that there had been signs that activity in the UK housing market was starting to “moderate”.
Paul Smith, CEO of haart estate agent, said the statement was an attack on the first-time buyer market and could strangle the housing market recovery.
“His proposals will also hold current homeowners hostage in their own homes, as they will not meet the lending criteria when they chose to move on and need a bigger mortgage. Those coming to the end of interest-only loans will also come unstuck and be dealt a double whammy with the fallout from the Mortgage Market Review still trickling through. Cable’s flawed plan would also knock housebuilders for six. Where is the encouragement to build homes if people, ready and very able to buy, won’t be lent the money?
“The whole point of a mortgage is to help those who aren’t lucky enough to make a cash purchase and that’s the majority of the UK’s aspiring homeowners which ever rung they are on,” said Smith.