So now Gordon Brown has decided on his latest popular measure. Be it right or wrong he thinks banning 100% mortgages is a popular thing to do.
To give Gordon credit he is getting warmer.
100% mortgages are and were not the housing market problem. Lending more than 2.5 joint income and not verifying income was and is the problem.
Let's look at 100% LTV mortgages first. If you ban them, the lender offers a standard 95% mortgage with a 5% personal loan to get around the ban. After all a 125% LTV mortgage is just a 95% mortgage with a 30% personal loan.
The housing boom was not caused by letting people buy a house with no deposit.
The housing boom was caused because a borrower could borrow more than 2.5 time their joint income and in many cases this was fast tracked with no income checking. So a fast track borrower could make up their income and borrow more than historically was ever possible.
This huge borrowing left the borrower with a problem though. They could not afford the repayments on a 25 year repayment mortgage. Not a problem - the lender stopped checking how a borrower was repaying the mortgage which allowed the borrower to borrow on an interest only basis with no repayments of capital.
We do not need more legislation. All the government has to do is get the FSA to do their job and check what information the lender is gathering to prove that the mortgage is both affordable and suitable.
A minimum should be 3 months bank statements, 3 months payslip and P60 with an employer reference or 1 years accounts with an accountant reference. Interest only should only be allowed with proof of a repayment plan and ongoing payments into this plan.
This government will never get this. A new government has to understand this before any progress will be made.