FSA review highlights super sizes mortgages
The chairman of the Financial Services Authority, Lord Turner of Ecchinswell, has completed a major review of the banking crisis; the proposal will be further explored in September.
One of the main concerns outlined has been what is considered to be reckless lending to home owners with mortgages such as the Northern Rock Together product that incorporates a secured loan as well as a mortgage which together could mean a total of 125% loan to value of a property, therefore being particularly precarious for home owners who’s properties have largely decreased in value.
The review says that banks should also build their capital reserves during the good times and limit the proportion of debt on their balance sheets to ensure the current situation is not repeated.
Lord Turner questions the loan to value and loan to income ratios currently employed by lenders, arguing that no more that three times income multiples should be considered. Many critics of this worry that it would completely inhibit first time buyers who struggle to get on the property ladder already, they currently require 10% deposits as a rule of thumb. Lord Turner said he would also like to see greater co operation between regulators around the world to prevent a repeat of the current financial crisis.
| 
