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AMI cautions against new mortgage market regulation

Instead, AMI argues that developments in the UK are the result of a wide range of other factors including macro-economic policy that produced similar trends in other countries with vastly different regulatory regimes.

The report was drafted by Dr Oonagh McDonald CBE, former MP, Treasury spokesperson and FSA Director. AMI’s paper is intended to inform the FSA consultation into mortgage market regulation starting in October, first announced by FSA Chairman, Lord Turner, in May.

Key points include:

* Sources of problems in the US market were not replicated in the UK;
* House prices in the UK are affected by demand and a lack of supply much more so than elsewhere;
* House price bubbles are not caused by lax lending;
* Limiting the supply of funds or the price of those funds is likely to deflate prices temporarily, but is only an artificial constraint and will create the next bubble when the supply of funds improves;
* Applying Loan-To-Value ratios as a product control is not appropriate and will neither affect demand nor avoid asset price bubbles – we need more sophisticated models such as the loan to average household disposable incomes ratio.

Robert Sinclair, Director of AMI, said: "If the FSA and the Government wish to exert greater control over house prices, product regulation is not the answer."

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