In its assessment of whether to introduce maximum loan-to value ratios or loan to income ratios, the FSA needs to consider the impact of such capping.
Whilst we need a return to responsible lending and rigorous assessment of customer affordability, the imposition of rigid limits could introduce more problems than it solves.
If consumer borrowing capability is governed purely by level of income rather than affordability, this could put further downward pressure on house prices and push even more people into negative equity.
Borrowing 3.5 times salary may cause problems if we were to return to the days of double digit mortgage rates of the early nineties, however with a vast range of product options and rates at their current low levels, this figure would appear to be extremely cautious.
There needs to be an allowance built in for rate increases when assessing affordability however the ability to fix your rate for up to 25 years if required, should also form part of the assessment of a customers' ability to repay.
Whilst there is no doubt that an element of regulation is required, if the chains are too tight then the housing market and potentially the wider economy may take longer to pull out of recession.
