Do you squeeze or massage?
A review of the mortgage market is to be published today by the FSA. Expected to tighten up Regulation and telling lenders, amongst other things, that they must carry out in-depth examinations of households’ disposable income before granting a mortgage. This point will be primarily aimed at self-employed and business people with irregular income streams who find it already difficult to secure a mortgage and comes after ministers asked the regulator to come up with tougher rules.
The move may put an end to cheaper mortgages and, as a result, slow down growth of house prices. Reluctant lenders may have to restrict access further and the borrower will become further privileged and a minority.
We’ve previously talked about Mellon’s formula of fighting recession in the Great Depression ‘ purging the rottenness out of the system’ . On this current occasion will the questions be whether the purging is of the wrong sort, in the wrong place at the wrong time? During Mellon’s formula for fighting recession he said “…People will work harder…. enterprising people will pick up from less competent people”. The Banking mess certainly needed purging but will deflation be exacerbated by these new rules? The home mortgage market has been disrupted; we’ve had banking bankruptcies, the solid bottom hasn’t been agreed upon, Interest Rates remain low and trade deficit isn’t good, all hardly signs of purging any rottenness from economic decline.
Whether, as Mellon spoke of, moral values have been adjusted, is another debate entirely.