It would seem that the lessons of history are, once again, deemed surplus to requirements. In a display of almost admirable obliviousness, ministers have urged regulators to loosen mortgage lending requirements, all in the name of that perennially intoxicating promise: helping first-time buyers onto the housing ladder. One might have assumed—perhaps naively—that the events of 2008 would have instilled a degree of circumspection in the great stewards of financial prudence. Alas, such quaint notions are easily cast aside when political expediency beckons.
The government’s enthusiasm for this initiative is nothing short of rhapsodic. Treasury ministers, in a letter to the Financial Conduct Authority, have called for “ambitious and rapid” changes to lending rules, asserting that the existing restrictions are unduly prohibitive. One imagines that these same restrictions, devised precisely to prevent another mortgage-induced financial calamity, are now to be discarded with all the care of an inconvenient parking ticket.
At the heart of this proposed largesse lies the promise of a “permanent” mortgage guarantee scheme. The premise is simple: allow banks to issue loans with a mere 5 per cent deposit requirement, presumably on the assumption that property values will continue their inexorable ascent, rendering all concerns about risk redundant. If this refrain sounds eerily familiar, it is because it is—having been the siren song of the pre-2008 lending bonanza that ended in catastrophe.
Regulators are now being encouraged to reassess their prudence. Stress-testing rules, which exist to ensure borrowers can withstand unexpected rises in interest rates, are to be “scaled back.” The rationale? Evidently, if a person has managed to pay exorbitant rents, they must surely be capable of servicing an equally exorbitant mortgage, regardless of economic volatility. The Bank of England, for its part, is being pressured to reduce capital reserve requirements for high loan-to-value mortgages, ostensibly to encourage banks to partake in this grand exercise of fiscal optimism.
Emma Reynolds, the City Minister, assures us that this is all in service of making homeownership a reality for the many. “I will work closely with regulators and industry to get this done quickly,” she declares, as though speed has ever been the primary ingredient missing from responsible financial governance. One is left wondering whether this exuberance stems from an earnest belief in the infallibility of the market or simply an acute case of historical illiteracy.
The architects of this policy, in their infinite wisdom, appear to have overlooked a rather crucial detail: housing crises are not caused by lending restrictions but by a chronic failure to address the fundamental issue of supply. In a country where demand for housing perennially outstrips the available stock, one might reasonably conclude that flinging yet more cheap credit into the mix will serve only to inflate property prices further, benefiting speculators rather more than struggling first-time buyers.
It is a peculiar sort of progress that involves retracing the very steps that led to disaster barely a generation ago. But then, financial history has always had a peculiar habit of repeating itself—first as tragedy, then as farce. One can only hope that, this time, the farce does not come at the expense of another global economic debacle. But given the prevailing winds of policymaking, one would be well advised not to hold one’s breath.
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