The response said: “The ‘open questions’ raised within Chapter 3 of the Turner Review include the suggestion that the FSA may venture into product regulation and specifically whether it should put in place limits for residential mortgages based on maximum loan to value (LTV) or loan to income (LTI). While this is something that will be explored more fully in the discussion paper on mortgage regulation scheduled for publication in September, Lord Turner has since asked whether policy intervention should instead focus on specific selling approaches and specific institutional risk rather than on product regulation, or additionally involve this.
“…We are disinclined towards towards the use of loan to income (LTI) regulation as income is not in isolation an accurate measure of affordability. Also, LTI would price first time buyers and the less wealthy out of the housing market unless prohibitive levels of deposit could be raised. Loan to value (LTV) can be useful but is only a point in time parameter, ie if the market falls an LTV of 80% could quickly become a 100% loan. These measures are crude if they do not relate to the economic environment in which they operate. For instance, a mortgage on an LTI of 3x salary when the interest rate is 12% will be less affordable than 5x salary at 3%.”
