The policy paper entitled The Madness of Mortgage Lenders: Housing Finance and the Financial Crisis accuses demutualised lenders such as Alliance & Leicester, Northern Rock and Bradford & Bingley of “reckless lending”.
The paper says limits need to be applied to the level of wholesale funding, limits to the amount of money they can lend for non-residential property and a maximum loan to value ratio of 95 per cent.
It also says house price income ratios should be limited to 3.5 times joint income and calls for a halt to self-certified mortgages which do not require documentary support.
The paper by Kings College, London Professor Chris Hamnett says buy-to-let mortgages should be restricted to a maximum of 75 per cent of property value.
He also says the demutualisation of building societies has been disastrous and should be limited in future.
Hamnett says: “This is not the first such housing market downturn but what makes this slump different from previous ones is that it has been accompanied by, if not directly triggered by, the collapse or take over of de-mutualised mortgage lenders who had expanded far too rapidly during the preceding decade by offering very generous loan to value and loan to income ratios funded by short-term borrowing on the wholesale money markets.
“In addition, the rapid rise in mortgage arrears and defaults has again highlighted the dangers of lending at over generous multiples of house values and incomes.
“While the expansion permitted more households to enter home ownership, it did so at great cost both to those individuals who now find themselves deeply indebted, with negative equity currently estimated at 900,000 households and in some cases facing repossession and also to the Treasury and the nation as a whole who are now picking up the rescue bill.”