CITY ECONOMISTS CALL FOR CURB ON HOME BUYERS BORROWING LEVEL – Respected City economists at the EY Item Club have called upon the Government to reinstate the traditional level at which home buyers can borrow in regards to their income levels.
Historically the amount of money a person could borrow to purchase a home stood at 3 times their income levels and unless this is reinstated there are fears we could well face yet another financial crisis as homeowners default on their mortgages once interest rates start to rise.
It was of course primarily the U.S housing marketing that caused the 2008 crash as banks took to providing mortgages to anyone regardless of the income status.
With David Cameron announcing at the Tory Party Conference last year of the new scheme ‘Help to Buy’ in order to help first-time buyers get on the property ladder many leading economists considered such a move dangerous to the housing marketing and the economic recovery.
According to some leading economists we are already seeing the beginnings of rampant house price inflation and this could be attributed to the ‘Help to Buy’ scheme.
As house prices increase young people are either going to be forced out of the property market altogether or to take up potentially crippling mortgages.
In such a situation, even the smallest of interest rate raises would cause thousands of homeowners to default on their mortgages resulting in yet another property market crash that will almost certainly leave the banks holding property with declining values.
Before the financial crash of 2008 a number of bank, including the failed Northern Rock, were approving mortgages equivalent to almost six times a person’s income and unless this practice is stamped out then people will face financial ruin once interest rates trend upward leaving the housing market bubble to burst.
Currently the UK is experiencing interest levels at a record low but such levels are not sustainable and interest rates are expected to rise again within the next year leaving thousands of homeowners at potential risk of losing their homes.
The figures certainly detail an alarming rise in house prices, especially for those in London where the average price of property climbed by 11.2% in 2013 alone. As for the rest of the UK, the average increase came in at 4.4% and this year it is expected that prices will continue to climb by 8.4% in London and 7.3% for the rest of the UK; again the increasing prices are clearly indicating yet another boom and bust that must be avoided if the economy is to continue to grow.