House prices are soaring again in London. It’s not surprising when you add the large inflow of new people to the slow rate of new construction and the ever more??racy lending policies of the major banks and building societies.

I am told some financial institutions will now lend 6 times a person’s income in certain circumstances. If that person remains in a job then interest charges at 6% will take 36% of the income - just about managable. If interest rates rose to 10% they would face having to spend 60% of their income on mortgage interest. That’s when you would have problems like the sub prime crisis in the USA today.

The Barker review of house prices just concentrated on the supply of new homes, arguing it was too low. She failed to look at the supply of new people, where we have been adding more than 200,000 extra every year from migration which is adding to the demand for homes, and failed to look at the supply of finance, where the old norms of 3 times income have long since been revised upwards.

The government’s seller’s packs and high Stamp duties will restrict the supply of second hand homes more, whilst the government has still not managed to find a way round the planning dilemma to create the extra new homes Barker claimed were needed.

Isn’t it time to look at the other factors fuelling to boom? Why doesn’t the government look again at the Conservative proposals for managed migration? And why don’t the financial regulators have words with the lending institutions about margins of prudence on home loans?

Trackback URI | Comments RSS