Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), has voiced his concern following the announcement by the Chancellor at the Mansion House last night that the Bank of England will have additional powers to cap mortgages according to income multiples or property value.
Murphy said: “George Osborne’s announcement is effectively a step backwards for the market if it translates into direct action. The introduction of the Mortgage Market Review (MMR) was the result of several years of industry planning which sought to do away with crude measures and put in place thorough affordability tests that absolutely ensure lending is measured, sustainable and closely calculated on affordability. However, this latest announcement suggests MMR has totally bypassed our politicians.
“Capping mortgages based on an income multiple completely fails to take into account personal circumstances and regional variations. Two buyers with the same income could pass the income multiple test, but one could be responsible for providing for a family of four and have high levels of debt while the other could have very few financial responsibilities or monthly outgoings. Trying to assess affordability with a one-size-fits-all measure is completely inappropriate.
“Likewise, regional variations in house prices means a huge section of the population could be barred from accessing housing finance, particularly in London or the South East where prices are generally much higher than three times income. No-one wants to see a runaway housing market, and action must definitely be taken if prices begin to rise excessively. However, MMR means no lender will offer a mortgage if it is not affordable, both now and in the future when interest rates rise. The government should allow the good work of MMR to bed in before making any rash decisions which could shoot any fledgling recovery in the foot.”