news 
Dishing out super-sized mortgages won’t solve the problem of high house prices
In a bold move to address the ongoing issue of unaffordable housing, Chancellor Rachel Reeves has announced plans to allow mortgage borrowers to take on debt equivalent to six times their joint income. While this may seem like a solution to the crisis, I firmly believe that it will only exacerbate the issue further.
As someone who has witnessed firsthand the devastating impact of over-borrowing in the early 2000s, I must stress that increasing mortgage sizes will not address the root cause of high house prices. In fact, it is likely to drive them even higher.
Let’s take a step back in time and recall when lenders were offering mortgages with no cap on how much borrowers could borrow, leading to a property market boom that ultimately culminated in a devastating financial crisis. The eagle-eyed will notice that all the banking brands mentioned above didn’t make it through the credit crunch-driven financial crisis that arrived in 2008. Today, however, the banking landscape has changed dramatically. Banks are now more robust and better equipped to handle the risks associated with such lending.
However, allowing borrowers to take on debt up to six times their salary is not a solution, but rather a Band-Aid fix for the problem. The root cause of high house prices lies elsewhere – in the imbalance between supply and demand. Building more homes to meet the growing demand would be a far more effective approach than dishing out super-sized mortgages.
While some may argue that it’s easier to afford a home when borrowing power increases, I must counter that this only serves to drive up property values. It’s simple arithmetic – if you lend people more money to buy homes, the price of those homes will rise. And what about the individuals who are already paying exorbitant sums for rent? Who can blame them for opting for a mortgage and at least be working towards owning their own home?
Nonetheless, I believe that increasing borrowing limits is an ill-advised solution that will only make things worse in the long run.
Source: www.dailymail.co.uk
