Mortgage rules eased as Bank of England scraps affordability test stokes the flames in the run up to the next big crash in 2025-26

From The Independent:

Mortgage borrowing rules have been eased by the Bank of England making it easier for thousands of potential homebuyers to get on the property ladder.

It will not make it easier (i.e. cheaper) for first time buyers, it will just force them to borrow larger sums to pay higher prices for what they would have bought anyway.

The affordability “stress” test forced lenders to assess whether people applying for a mortgage would be able to cope if interest rates rose to 3 percent.

The Bank of England said that the change should not be seen as a “relaxation of the rules”, adding that a number of other measures still in place “ought to deliver the appropriate level of resilence to the UK financial system, but in a simpler, more predictable and more proportionate way.” The test was introduced in 2014 following the 2008 financial crash and was designed to stop reckless lending to people who could not afford it.

But hey, let’s allow reckless lending again, now that what happened fourteen years ago is fading from memory. It’s like banning guns, seeing gun crime fall and then legalising them again on the basis that gun crime is low.

Another rule, which is still in place, limits most new mortgages to a maximum of 4.5 times a borrower’s income. The Bank of England’s financial policy committee said in 2021, after a review of the rules, that this other limit “is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices.”

FFS. How is borrowing 4.5 times your income, especially if it 4.5 x joint income of a couple, not reckless? Back in the sensible days of Georgism Lite, that limit was about 2.5 x main earner’s income.

Added to a decent deposit, that’s enough to pay for the bricks and mortar value or the cost of building a new one (with a sane profit margin for the builder), which depresses the price paid for the land/location value, hooray. We know this is true because they were building plenty of new homes for FTB’s during Georgism Lite (landlords were frozen out by rent controls, tenant protection and high taxation of unearned income), and the insurance value of housing was pretty close to how much they cost to buy.