News today that the Financial Services Authority has discovered a precisely correct and safe level of mortgage lending for everyone - up to 3 times annual salary - struck me as pretty absurd. Why not 3.21 or 2.95 or 4.0319?
Sadly, during this recession, there may be lots of people going into negative equity. But it's only when people lose their jobs combined with massive hikes in interest rates that the mortgage stops being paid. When this last happened in 1991, the repossession rate was only 0.77% - horrible for those concerned, but the mortgage books of lenders continued overall to be profitable. I just don't agree that mortgage lending fuelled the housing boom as much as is commonly portrayed because to use the jargon, unlike sub-prime lending in the United States, almost all of the UK's mortgage book is performing debt and will remain so. In other words, in Britain, there may have been some excess lending, but not much and thanks to a few burnt fingers, you really don't need government intervention to stop it happening again.
Meanwhile, there are lots of long term measures a government could implement to help the housing market to supply the homes Britons actually want. Most notably, much less interference in deciding where (I doubt that many people want to live in the Thames Gateway), how many (the Barker Review), at what level of urban density (most people just don't aspire to live in flats, but houses with gardens) and for whom (social housing, key workers, all subsidised) homes should be built.
But for the FSA to seriously consider straitjacketing the country into a one-size fits all safe lending limit is deeply mistaken.