It has been reported that, as part of the package to recapitalise the banks, they are to try and restore lending to 2007 levels. This press release from the Council of Mortgage Lenders points out that lending in 2007 was at a very high level and it might not be a good idea to move straight back to that - especially in a situation where house prices are falling.
The rapid provision of extra mortgage credit could re-create the problem of people being given loans they can't afford. It would also stop the drop in house prices - which would mean that they would become more unaffordable. House prices were at historic highs in 2007. It is only natural that they should now fall so that affordability ratios can reach normal levels. The sudden provision of extra credit could stop this process and trigger another bubble.
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