Balance needed

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IRRESPONSIBLE lending was a key contributor to the collapse of the economy and it is clear the mortgage system needed reform – but an overreaction risks pulling the property ladder out of reach of the young people who are needed to promote the recovery.

The new rules put forward by the Financial Services Authority include tough affordability and income verification checks, while those with interest-only mortgages must show they have a way of repaying the loan at the end of its term.

They appear so severe that Housing Minister Grant Shapps has stepped in and asked the FSA to reconsider, fearing thousands of buyers will be shut out of the market and forcing down house prices still further.

The trend is deeply alarming – this latest announcement comes just days after it was revealed the average deposit required from a first time buyer is nearly 29,000, with up to 85 per cent needing help from family to get on the ladder.

To recover from financial crisis the country needs a momentum boost from the next generation of young, ambitious minds and yet many are desperately struggling to make ends meet, let alone save more than the average annual salary.

Added to this, graduates are facing an estimated 40,000 of debt. If these trends continue they may need to accumulate nearly 70,000 before they can balance the books and own a home – and this from a Government that promised to inspire a savings culture not a credit culture.

Clamping down on reckless loans is vital, but there must be a balance between offering 110 per cent mortgages to people on modest incomes, and creating a housing market that is only available to the wealthy.

Such a situation is not just an obstacle to social mobility, it will weigh down a desperately weak economy and delay the recovery we are all waiting for.