It's an impressive act of lobby ventriloquism: banks, estate agents and housebuilders all declaring that tighter rules for mortgage lenders are bad news for first-time buyers; while MPs and ministers fret that clamping down on mortgages will trample on the aspirational dreams of millions of young people. This has become such an article of faith it seems almost counter intuitive to point out that, well, it's wrong.
Iconoclastic it may be, but the truth is that first-time buyers have been the biggest losers from looser mortgage lending. Tougher regulation would undoubtedly be in the younger generation's interests.
Let's look at the evidence. How did young buyers fare in the boom years? The decade after 1997 was the sunny uplands for no-holds barred mortgage lending – we were drowning in the stuff. Total levels of mortgage credit tripled, deposit barriers disappeared, buy-to-let boomed, and half of all mortgages became "self-certified". Access to money had never been easier. But, disconcertingly, in almost every consecutive year the number of first-time buyers fell. In July 2007 there were 15,600 different mortgage products available in the UK, but there were fewer first-time buyers than ever before, and we faced record levels of house prices.
In their postmortems of the boom years, the IMF and the OECD point out why this was so across pages of hard economic data. They found that the looser the levels of mortgage lending, the faster house prices rose above underlying incomes. Put bluntly: loose lending causes deteriorating affordability. More credit pushes up prices rapidly and new entrants are unable to keep up – unless they take on more and more debt.
The result of a decade of mortgage excess and regulatory failure makes grim reading for anyone concerned about the health of UK families and our economy. The UK has higher levels of mortgage debt relative to our GDP than any other advanced economy – and significantly higher than the US who are no slouches when it comes to mortgage borrowing.
The burden of this debt has landed overwhelmingly on younger people's shoulders. David Miles from the Bank of England recently observed that there was "very high leverage for young homeowners and very low leverage for older people". The beneficiaries of our indebtedness have been our banks and our older generations – sitting on record levels of housing wealth. Young people have precious little to show for it, apart from the prospect of much of our future wealth being eaten up by housing costs.
When asked directly, first-time buyers know that loose lending is not in their interests. Shelter recently conducted an opinion poll that found three-quarters of first-time buyers believe banks must lend responsibly, while more than half thought that high prices, not availability of credit, was the main problem facing them in buying a house.
Today's FSA's proposals are welcome, though remarkably unradical: banks should be made to check someone's income, anticipate possible interest rate rises in calculating affordability, and ask whether someone using an interest-only mortgage is thinking of how to repay the capital. Worryingly, buy-to-let will remain outside this new regulatory regime. That these proposals have met with such industry hostility is a mark of just how out of control our mortgage lenders have become.
Clamping down on reckless lending would rein in house prices and stop competition for houses based on how much debt you are prepared to stomach rather than what you can sensibly afford to pay. First-time buyers should speak up for ourselves: stopping the mortgage rollercoaster could be a very good thing.
Matt Griffith is a volunteer for PricedOut – the campaign for first-time buyers and cheaper housing
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