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Mortgage experts tell Paul Thomas that controlling credit by capping LTVs will not curb market volatility

Mortgage brokers reject a suggestion from social policy thinktank the Joseph Rowntree Foun-dation that maximum loan-to-value ratios should be considered to help combat volatility in the housing market.

Last week, the foundation published a report looking at possible ways of ending boom and bust cycles in the property sector. Alongside alter-natives to homeownership and increasing housing supply to combat volatility in the long run, it sug-gested credit controls as a means of ending short-term volatility.

Volatility in the housing market causes a variety of problems for homeowners and can increase the risk of arrears and repossessions. JRF estimates two million households with mort-gages would have found it difficult to move due to limited or negative equity in their homes at the end of 2008.

The report says: “Credit controls, such as temporary or permanent maximum loan-to-value ratios, would be more likely to exert a direct impact on the housing market.

“While there are clear trade-offs in terms of reducing access to mortgage credit, reducing volatility is in the wider public good and credit controls are worthy of serious consideration.”

First Action Finance head of communications Jonathan Cornell says capping LTVs would unfairly disadvantage would-be borrowers.

He says: “It is easy for policymakers to sit in their ivory towers and come up with grand plans of how to fix things. But for people looking to break into the housing market, being told you need to keep saving for another five, 10 or 15 years before you are going to have a big enough deposit is incredibly harsh.

“Lenders need to offer a variety of mortgages, especially for borrowers not lucky enough to have rich or generous parents.”

If I Were You managing director Rob Clifford believes lenders will fight any attempt to cap LTVs.

He says: “Imposing harsher credit criteria, particularly depressing LTVs, is a blunt instrument and product providers will resist. It is a key tool that helps them balance product design with appropriate terms.”

Supply shortages are a key factor in house price booms and the JSF says a far higher rate of houses needs to be built to maintain current levels.

Clifford says: “The volatility is principally a reflection of supply and demand in the UK and the fastest way to stop that is to increase housing stock. At the forefront of that strategy is the new homes dev-elopment sector, which is still suffering from the downturn and is nowhere near its aspiration levels.”

Cornell echoes the JSF in calling for a review of the regulations around the planning process, which he says will encourage house building and, in turn, help fight market volatility in.

He says: “More and more households are being created but we have slowed the rate of housebuilding to a level that is farcical. An easier solution is to change planning regulations so we are building enough houses. Until then, the problem will not be solved.”

Your Mortgage Decisions director Martin Wade has called for more investment in social housing.

He says: “With a modern economy, people need to be far more fluid in their decision about where to live and to react to where the work is. Our attitude for the past 10 to 15 years has been narrow-minded in the sense that owner-ship is the only way.”

However, the JSF says: “Within current subsidy levels, affordable housing is likely to play only a limited role in creating new housing supply.”


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