House-price linked mortgages could help lenders address the balance of solvency and helping buyers to get on the property ladder, a former Bank of England Monetary Policy Committee member has said.
David Miles, a professor of financial economics at Imperial College, London, said the Bank is aware of tensions of keeping financial institutions solvent and making mortgages available so households can get on the property ladder at a younger age.
Speaking at the Paragon Great Buy-to-Let Debate in London, Miles said the Government buy-to-let clampdown wouldn’t help make it easier for people to get on the property ladder.
He said: “Changes in buy-to-let were justified as a move in the direction of removing distortion against owner occupiers. This is patent nonsense.”
He predicted that if landlords had to raise rents to mitigate the extra Stamp Duty and mortgage interest relief changes, tenants could end up paying 20% to 30% extra in rent.
He said the Government and regulators may have to accept that house prices continue to rise above income but suggested house price index loans could help tackle this.
Miles said: “House price index loans may be more attractive where the amount you pay fluctuates in line with what happens to the value of the property. That becomes more attractive if you are in a world of persistently high prices to income.”
If I understand “House price index loans” right the borrower pays more as the value of the property goes up? Who’s going to accept that in a competitive lending environment.
Or perhaps the amount of loan goes up as the house price increases? Either way, this would be the lender taking some of the upside from house price appreciation. That leads dangerously to lenders speculating on property prices.
It also turns it upside down – in a traditional mortgage the lender’s risk goes down as the property price goes up as LTV comes down. So the lender’s charge should go DOWN not UP.
This idea might be good for the lenders but nobody else.
Not going to happen.
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