A leading London-based advisory group has offered a plan to prevent a future housing bubble in the U.K. by curbing the country’s “addiction” to home price inflation, according to Bloomberg. On Tuesday, the Institute for Public Policy Research suggested that lenders in the U.K. should cap mortgages at 90% of the property’s value or at three-and-a-half times a household’s annual income. The group pointed to four housing bubbles in the last four decades, and director Nick Pearce urged the Financial Services Authority to impose “caps on loan-to-value and loan-to-income ratios.”
The IPPR noted that home prices tripled in the 10 years through 2006, and that mortgage lending is 81% of gross domestic product in the U.K., and the group was particularly concerned that the average loan for a first-time homebuyer was 3.15 times the annual household income. Additionally, the group recommended that buy-to-let mortgages be discouraged, which Pearce said, “can artificially inflate our housing market.” Separately, the Centre for Economics and Business Research said on Tuesday that homes prices are nearing a low, forecasting for a 1.4% decline during 2011, but a 16% gain over the following four years.