Think tank comments on “The Madness of Mortgage Lenders”

The Institute for Public Policy Research (IPPR) wants to see mandatory guidelines for mortgage lenders that will ensure the mistakes that resulted in the credit crunch are not repeated.

In a report timed to coincide with the Mortgage Sector Conference initiated by the Financial Services Authority, the think tank argues that the housing bubble, and the subsequent collapse of the market owe much to the reckless behaviour of a number of mortgage lenders.

The author of the study, Professor Chris Hamnett, of Kings College, London, names de-mutualised lenders Northern Rock, Alliance and Leicester and Bradford and Bingley as particularly culpable.

The paper entitled “The Madness of Mortgage Lenders: Housing Finance and the Financial Crisis” recommends: a limit on house price-income ratios of possibly to 3.5 times joint incomes; a halt to self-certified mortgages and the restriction of buy-to-let mortgages to a maximum of 75% of property value.

Other recommended regulatory measures include: preventing mortgage lenders from offering bulk mortgage deals for new build developments; the prohibition of buying mortgage portfolios from other lenders and a requirement for lenders to submit bi-annual reports to the FSA on the volume, nature and composition of their mortgages.

The FSA is currently reviewing the mortgage market and expects to publish a paper on the future shape of regulation later this year.

The Mortgage Sector Conference, which opens today, is described as a “first step in inviting the industry to engage in the review” and an opportunity for the FSA to outline its current thinking on change.

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