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Mortgage lenders should cap deals


Sir John Gieve from the Bank of England has said that mortgage lenders should have more control on how much they can lend to customers. Controls such as loan-to-income and loan-to-value should be taken more into account when lending.

Sir John Gieve said: "In theory, a ceiling on these ratios could have provided an effective brake on the excesses of the last boom.

"If problems are concentrated within the property market then caps on loan-to-income and loan-to-value ratios might be effective."

He also went onto say that he supported plans to copy Spain’s financial regulation system. He indicated that the bank could have set interest rates more suitably in the decade before the financial disaster. He commented further by saying: "the large and coordinated cut in interest rates at the start of this decade almost certainly contributed to the build-up of an ever larger bubble."

Only a few policymakers have asked for controls on bank lending. Having said that many people have raised concerns about banks lending more to borrowers than they can afford which was at the peak of the housing boom a few years ago.

Northern Rock’s Together mortgage is an example of lending more than the borrowers can afford.  Borrowers would be given upto 125 per cent of the value of their homes and from the offset would be on negative equity.

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