It is astonishing how quickly policy-makers have been performing U-turns, and then U-U-turns on all of this. During the bubble, the establishment was absurdly relaxed about high loan to value mortgages, including some at well over 100 per cent; they were equally happy with people who borrowed many times their income. Then came the financial crisis, and the inevitable backlash. The regulations were changed and banks were forced to hold much more capital, drastically reducing their incentive to extend mortgages with low or no deposits. Their own beefed-up risk assessment systems also made them much more reluctant to lend out too much on the back of uncertain collateral, especially when house prices were still falling.
But the government gradually began to realise what it had done, and panicked. It started shouting at the banks, and when that didn’t work launched a number of initiatives to subsidise credit, including with help to buy. Its right hand sought to undo the impact of the regulatory changes that its left hand had pushed through; it was the very opposite of joined-up government.
All seemed well for a while – until the government started to panic again. House prices were rising too fast. The two main state-backed banks suddenly pushed through a maximum loan to earnings cap of four times on homes worth £500k or more. But the real U-U-U-turn came last night, with Osborne giving the Bank of England the power to cap loans, even though the Old Lady of Threadneedle Street had previously said that it didn’t actually want to be given such authority.Government by lurch, over-correction, then back to lurch.