It is easy to propose solutions after crisis have come, but also it is necessary to think about if we want to avoid a new arrival of chaos. Mortgage lending has been one of the main factors of the financial nightmare and we need to improve the control over the issue, as many families make a enormous effort to be owners of a house. Here there one recommendation over the question.
It comes from the Institute for Public Policy Research, which has released the paper The Madness of Mortgage Lenders: Housing Finance and the Financial Crisis. The author, Chris Hammett argues that «the housing bubble, and the subsequent collapse, owe a great deal to the reckless lending behaviour of a number of mortgage lenders, particularly the de-mutualised lenders like Northern Rock, the Alliance and Leicester and the Bradford and Bingley». He thinks Governments should establish better control over these institutions. In particular, he suggest three points:
- A limit on house price-income ratios of possibly to 3.5 times joint incomes.
- A halt to self-certified mortgages which do not require documentary support.
- The restriction of buy-to-let mortgages to a maximum of 75% of property value.
Some people are not very able to accept more control on the marketplace, but the crisis has demonstrate once again that we do not manage very the invisible hand. May it does not matter for other lending schemes, but it has been terrible for the house market. No country is free of the collapse. Professor Hammet also offer other recommendations that you can read in the paper.