New rules on mortgage lending to be announced on Monday could deal a fatal blow to the fragile housing market.
With tighter lending guidelines, the Financial Services Authority are expected to give banks the moral responsibility of saving borrowers from themselves and check that customers can afford the loans that they apply for.
Whilst there are certainly some individuals who obviously need saving from themselves, most hard pressed home buyers already finds it hard enough to get credit and needs these nanny-state controls like a dose of dry rot!
In the dying months of the current administration, this Government seems determined to loose the support of home owners. At the peak of the market in July 2007 there were over 12,000 different residential mortgage products available and this sank to around 1,200 earlier this year. The Council of Mortgage Lenders states that borrowers are typically having to find 25% deposits and additional restrictions will only reduce the present trickle of buyers capable of completing a purchase. Removing any of the rare buyers that can actually participate in the market at present would obviously reduce demand and could trigger a collapse in prices.
Although house prices have recovered some of the ground they have lost over the past year they are still about 15% down on the peak. Having given banks a heap of tax payers’ cash with instructions to ‘get lending again’ the Government now appears to want to restrict them from actually doing so. Additional lending is the one thing that almost all commentators think will help volumes of sales return. Currently, the number of homes coming onto the market and the number actually selling is running at about 60% below their peak. In August, the number of homes selling every day in the UK was just 2,387. The long term average is 3,745 and in 2007 there were over 5,300 selling every single day.