Common sense banking

Firstly it's great that this week’s column has sparked such in-depth fact hunting and debate. I apologise to Keep it Real for assuming that rounding, using the caveat of “nearly” would convey the “not quite a full decade” concept I was looking to put across. It was indeed 2002 before the Price Earnings Ratios increased back into the lower 4’s since the summer of 1991 - “most affordable level since March 2003” just didn’t have a nice ring to it! I believe, however, that most would agree with the general sentiment that houses are at their most affordable for a good number of years, if only buyers could get hold of accessible mortgages – hence my second point.

To clear the point up, “affordability” calculations would of course need to be based on a whole bunch of interest rate scenarios, and maybe “fixed rate only” should be offered to those seen as higher risk. By no stretch of the imagination does my “affordability” definition mean “can only afford the mortgage payments if interest rates remain at their current record low level.”

But this is all the good stuff for future debate, and I personally look forward to that.

• 23 March 2009 17:46 PM

If we are talking about “focus on credit-worthiness and affordability” as meaning sensible lending based on income, other outgoings, etc, I agree in the main. I see no argument against releasing higher ltv products – to a point. 90% should be the maximum for now, but even at this level, it would lead to so much more buyer activity that we would see a significant positive impact on the housing market. By the way ‘Common Sense’ - high deposit requirements are the same thing as low LTVs. They only protect the bank and don’t automatically ensure borrowers can afford the mortgages they sign up to – I’m pretty sure that’s the point the author was originally making!

• 23 March 2009 16:35 PM

What stats are you looking at to conclude that house prices are "at [their] most affordable in nearly a decade"? In 1999 the price / av. earnings multiple based on the Halifax index was 3.13 times (Mar 1999). Today that ratio is 4.42 times. If we go back to your data point of Mar 1999 then the average house price would be £113,437 (3.13 times today's av. earnings of £36,242). This is 29.2% BELOW current prices of £160,327. Prices may be 'affordable' on an interest coverage basis but they are going to go down a lot further yet. And when interest rates rise people buying now run the risk of being trapped with mortgages they can't afford in a still falling market. Please exercise caution when making sweeping assertions - or back them up with some stats so people can make an informed decision.

• 23 March 2009 13:06 PM

Robin is correct to a point.
The market is like a bogged down vehicle. It needs a lot of effort to get it rolling again. Then once it is rolling and only once it is rolling prudence can gradually take over to limit its speed.
We need a sensitive approach taking into account the current market conditions not what they were 2-3 years ago or what they may or may not be in the future.

• 23 March 2009 12:02 PM

Robin are you not struck by the sheer illogicality of what you write? Would you not agree that a large contributor the current malaise was irresponsible lending (and borrowing) by people with insufficient deposits and too little income versus size of mortgage. So what is your solution? Lower deposits and higher LTV requirements. Thank heavens people like you are not making policy. Within three years we'd be right back to where we started.

• 23 March 2009 11:05 AM