AMI also said that the implementation of such plans should be delayed to avoid severe market retrenchment.
George Osborne is due to deliver his Mansion House speech this evening and media leaks suggest that he will announce specific measures to control banks’ lending activity, to be governed by the Bank of England.
One proposal is reportedly the imposition of a cap on loan to value ratios, preventing banks from lending more than 75% of a property’s value to borrowers.
But AMI director Robert Sinclair says this is unsupportable and any immediate implementation of a cap such as this would have a significant effect on market confidence, lending volumes and house prices.
He said: “The question is how do you put the genie back in the bottle. If a measure such as this was applied today it would have a significant impact on house prices today. How will anyone ever refinance again? Not to mention the number of borrowers who will be prevented from ever buying a property. The government must be careful not to put existing borrowers in ghetto they can’t get out of.”
Though Sinclair said AMI was not calling for a cap “in any way, shape or form”, 95% would be a more sensible level if there were to be a cap in the future.
“AMI is calling for a responsible view of what is required to keep confidence in a fragile mortgage market. Acting now when markets are still fragile is not appropriate; putting in place a framework for the future could be sensible. It depends on the detail.
“It’s not altogether a surprise that the government is taking a demonstrable stand on this, but it depends on what is actually done. Clearly there’s an issue around high LTVs and lending to borrowers with payment issues – the toxic product issue in a sense. But there is a danger that acting too soon will divert capital in the short term in what is already a very fragile market.”
Sinclair says the market is in no danger for the next five years of overheating; there is not enough funding as it is because lenders are holding capital to repay the Special Liquidity Scheme, which is due to be repaid next year. Securitisation markets are beginning to see some movement but wholesale funding is still hard to come by, also dampening lending volumes, says Sinclair.
He said: ”Lenders already can’t lend at the moment, any further regulation to cap lenders’ ability to lend will discourage outside investors from putting money behind the mortgage industry. It’s a dangerous situation for investors if a regulator can arbitrarily control the market and cap productivity - why invest in the UK market which is subject to this risk when you could invest elsewhere without the controls?
“A worst case scenario would be to encourage institutions to consider moving their primary business registration abroad.”
Danny Lovey, Basildon-based sole broker, said: “This government wants a housing driven boom like a hole in the head. They also want more money directed towards industry to rebalance the economy and encourage growth. I thoroughly agree with the Bank of England taking control of lenders and their lending policies.
“Interest rates are a blunt instrument, and jacking them up to control housing booms buries industry. This is a better way of controlling the housing market, and house prices while keeping interest rates lower.”
