October 27, 2009
Regarding ‘EU plans to review mortgage access rules‘:
A 40% cap on loan-to-value (LTV) to obtain a mortgage, as mentioned in the article, would be a vast overreaction when one thinks of the millions of successful borrowers and mortgage products as compared with the far smaller number of bad debts and repossessions.
As the Royal Institution of Chartered Surveyors (RICS) stated in its response to the consultation on responsible lending & borrowing, even >100% LTV mortgages could be approved on a case-by-case basis, although this should be the exception rather than the rule.
For many people, a mortgage is the largest financial commitment they will make in their lives. What we should be discussing is how to best assess the risks to ensure that, under normal circumstances, borrowers can pay back what they owe. While it is good to take a critical look at the mortgage markets, they should not be stifled in these economic uncertain times. Instead, mortgage markets should be there to facilitate and support the mobility of both the labour and the housing markets.
What we need is a holistic debate on what makes a good mortgage, not an isolated one on LTV. Even a high LTV & high LTI (loan-to-income) loan may not necessarily lead to higher mortgage default, provided that other aspects are taken into consideration.
Besides LTV & LTI, other aspects should be assessed at the same time, such as credit-worthiness, risk attitude and future borrower income projections. Also, we should be addressing bad practices such as high arrangement fees, misuse of self-certification of income and teaser rates.
Finally, an essential component of a good mortgage is a solid valuation reflecting market value. Poor quality advice on value has underpinned many irresponsible loans. Valuations should be undertaken on the basis of solid professional standards.
Head of EU Policy & Public AffairsLetters to the EurActiv editor