The current ills in the housing Market in England and Wales and the dearth of available mortgage finance were discussed in the Times this week by the eminent economist Ann Pettifor.
In it, she blames the accumulation of unaffordable debts over the last two decades as the main reason for the boom to bust cycle.
She argues that it was not cheap credit that was to blame, but rather a culture of easy but expensive credit. It was certainly not cheap as some subprime homeowners were paying 19 per cent interest. It was ease of obtaining the money that was the cause. This, in turn, led to the massive inflation in property prices — house prices trebled between 1997 and 2007.
As Ms Pettifor puts rather quaintly:
“We over-borrowed against these inflated prices. The rollicking times were rollicking and now we are getting a bollocking.”
As for a solution to the problem, she believes, we need look no further than the past. “When I and my partner took out a mortgage in 1970s we had to see the bank manager, who went through our finances with a fine-tooth comb,” she recalls. “That’s all you need — more bank managers making an assessment of risk.” In essence what we need now is “tight but cheap credit”
This change in outlook by the Banks may not be that difficult. It seems to me that most Banking practices have a cyclical nature. What became discredited in terms of efficiency, e.g. bank manager’s time being replaced by computer credit scoring could now be the wisest and more profitable solution.
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