Responsible mortgage lending or overly cautious?

New research from the National Association of Estate Agents suggests that almost one in four people can’t get a mortgage due to stricter lending criteria from mortgage lenders.

Of the 1,800 people surveyed, 56% believed that more relaxed criteria would improve their chances of being able to buy a property. In fact 58% said that more lending by banks by crucial if the UK is to pull out of the current property slump.

These results, released yesterday, throw up an interesting debate – are the banks being too cautious? Or is their current conservative practice a prudent and necessary response to current conditions brought about by riskier lending in the past?

Few will disagree that now is not the time for mortgage lenders and other institutions to be throwing money around willy-nilly and providing credit to people who cannot afford it.

However, there are plenty of people (and we see them every day) who cannot find a suitable mortgage, despite being financially secure and in a position to afford one. This is particularly frustrating for people at a time when interest rates are at an all time low and mortgages should in theory be more affordable than ever.

Having gone from one extreme to the other in terms of mortgage criteria, it’s important that the mortgage industry finds some middle ground. Yes, we have to react to the problems and mistakes of the past, but we also need to be aware of the current batch of struggling first time buyers and home movers who will play a key role in the economy’s recovery.

It seems ridiculous for example that in 2007 (when house prices hit their peak), a number of lenders would give you a mortgage and require no deposit at all, whereas now (after fall of around 15%), if you have less than 10% deposit, your options are almost zero.

Ultimately, banks should be lending responsibly, but without discriminating against people who are looking to borrow within their means.

Things do seem to be improving slowly though according to the Council of Mortgage Lenders (CML). It said yesterday that “the trend of tightening lending criteria seems to have subsided and we may see a modest easing in these measures over the summer.

And with house prices appearing to stabilise (Nationwide reported a 0.9% increase in prices in June, Halifax a 0.5% fall), hopefully this will give lenders more reason to relax their criteria.

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