In the first of three papers that the AMI will be submitt-ing to the FSA ahead of the mortgage conduct of business review in October, it says that on a macro level, average income, ratios of mortgages to rents and mortgage payment to income ratios are inadequate measures of the affordability of mortgage debt.
Author of the paper Dr Oonagh McDonald says: “The more appropriate measure is the loan to average disposable income, preferably on the basis of household income, taking into account the growth of two-earner households.”
AMI director Robert Sinclair says it would be unfair to place limits on loan to value or loan to income ratios for consumers who have already taken out high LTV and LTI mortgages.
He says: “If lenders price mortgages appropriately for the risk, then consumers should be free to make their own choice about how much they borrow.”
The paper also downplays similarities between the US and UK mortgage markets.
Sinclair says: “US non-prime peaked at about 32 per cent of their market while in the UK, it did not get above 12 per cent.”