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Housing and the Credit Crunch

The hon. Lady will see from Hansard that my remarks showed no complacency whatever. They indicated concern about the problem, but noted that the latest CML forecast showed a slightly less worrying pattern than previously expected. I believe that that is the result of Government intervention, as well as the impact of relatively favourable interest rates. I accept entirely that that may not continue if interest rates begin to rise, and particularly if a continued rise in unemployment causes people to have difficulty in maintaining their mortgage. I am not for a moment minimising the problem, but we need a serious, thorough and thoughtful response, rather than simply trying to pick up figures that may make national headlines. To illustrate that, the Nationwide building society recently and sensibly accepted the need to provide mortgage advances of more than 100 per cent. to people in negative equity. If people with negative equity need to move home, they are trapped unless such mortgage facilities are available. The hon. Lady will recall the torrent of abuse on the Nationwide from various media, implying that it was reverting to the pattern of generous loan-to-value ratios among lenders before the credit crunch. We now want lenders to be more cautious, but we do not want them to be unthinkingly cautious and to swing the pendulum from one extreme to another without recognising the need to be attentive to the requirements of individual households. If those households can afford to meet the repayments, a loan of more than 100 per cent. may be justified. That illustrates my concern that we should have a serious debate about the issues, rather than one that is driven all too often in the media by headline figures and scare stories that do not prompt a full understanding of the complexity of some of the issues. I want now to talk predominantly about two issues: the availability of credit, and the types of intervention that are most appropriate to help to ease our way through these very difficult times. I have said that banks and mortgage lenders have swung like a pendulum from one extreme to the other in the past two years. From a position in which they were lending money in a way that many people believed was very imprudent, they have now switched off the tap so that many people who could service a mortgage on a new property are finding it impossible to acquire a loan. We have gone from feast to famine very rapidly. The problem with that is that in too many cases lenders are using the credit crunch as an excuse for restricting the availability of mortgage lending, rather than doing what they should do, which is to examine closely the individual circumstances of the applicant and to judge, on a proper assessment of the applicant and the property, whether the loan is a prudent one to make and, if so, what percentage of the value it is reasonable to offer as a mortgage advance. I would like to see mortgage lenders moving back to what they used to do, which was to examine closely the individual circumstances and creditworthiness of the people involved and the condition of the property, rather than have the tick-box mentality that has become part of the mortgage lending culture, in which if people satisfy a particular percentage, they get a loan, and if not, they do not. Often the judgement is made with little or no regard to their circumstances. That partly explains why the mortgage lending business got into such a mess: it made many loans without examining the creditworthiness of the people involved. The sub-prime market in the United States was a classic illustration of that, but there were many similar illustrations in the UK and the lenders burnt their fingers badly. Why they have not recognised the need for more thoughtful attention to the individual loan, I do not fully understand. I hope that that issue will be considered more thoroughly. I am extremely wary of the people who argue that regulatory formulae should be imposed such as a ban on loans of more than a particular per cent., for precisely the reason that I gave in responding to the hon. Member for Brent, East (Sarah Teather). There may be circumstances in which an advance of more than 100 per cent. is justified, even today. A tick-box approach that sets arbitrary figures and requires all lending to fall within that does not satisfy what I believe should be the key criterion, which is a proper assessment of the creditworthiness of the individual and their ability to service a loan on a property that hopefully will provide adequate security. Those are the factors that should be taken into account, and mortgage lenders should be giving more attention to that. We also need to consider how to assist people who for the moment cannot acquire a loan because the percentage that a lender is willing to offer falls far below their ability to raise a deposit. The range of shared equity models that the Government have promoted and that are offered by housing associations, the Homes and Communities Agency and some house builders have an important role to play. I welcome the attention given to those options, which assist people whose income is sufficient to repay a loan to secure a mortgage advance and to buy a property, rather than being trapped in a position in which they believe that their only option is to look for social rented housing—of course, that increases even further the pressure on individuals looking for social renting.