House Prices: Rein In Irresponsible Lenders

10.40.11am UTC (GMT +0000) Fri 31st Oct 2003

Reacting to this morning's Nationwide House Price Index showing a renewed acceleration in house prices, Vince Cable MP, Liberal Democrat Shadow Chancellor, said: "This is further proof that there is an unsustainable bubble in the housing market. Soaring house prices are a headache for Gordon Brown and make an interest rate rise all the more likely."

"People who are borrowing at the edge of their means may get clobbered in the next few years, if rate begin to rise steadily."

"The Bank of England has warned in the last week that homeowners would be brutally exposed if there were a serious downturn in the housing market."

"The Bank of England alone cannot deal with the house price bubble - the Financial Services Authority needs to supervise lending to protect homeowners."

"It is time for the Government to take action to protect ordinary homeowners against irresponsible lending."

Ends

Note to editors

Last week's MPC minutes noted that house prices are 'well above' what the Bank considers sustainable and that the recent rises in house prices may have been driven by 'speculative behaviour and/or over-optimistic views about the sustainable level of house prices' (para. 12).

There are four worrying signals for the housing market:

1. 50% of mortgage borrowers are borrowing over three times their

income - the highest ever (Council of Mortgage Lenders, 20/10).

2. Less than half of all mortgage lending is now for new house

purchases - almost half is remortgaging for spending elsewhere (Council of Mortgage Lenders, 20/10).

3. The ratio of debt to income is now 120%, compared to 100% at the height of the Lawson boom (Bank of England Quarterly Bulletin Autumn 2003).

4. The ratio of house prices to income is now 160%, a similar level to the ratio just before the collapses in house prices in the early 1990s (BoE Quarterly Bulletin Autumn 2003).

Vince Cable MP has been warning for over a year that the Government, Bank of England and Financial Services Authority need to address aggressive and irresponsible lending by some of the leading commercial banks.

The FSA and Bank of England need to take responsibility for ensuring that lending institutions are not taking excessive risks with consumer and commercial lending against property prices - to avoid a Japan-like situation of a collapse in asset prices.