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Call for action to stop future housing market bubbles

Mortgages should be capped at 90% of property values and at a maximum of three-and-a-half times household income, according to a new report published by the Institute for Public Policy Research (IPPR).

The new report recommends caps on ‘loan-to-value’ and ‘loan-to-income’ ratios to help stop another housing bubble building up in the future. The UK has had four housing bubbles in the last 40 years, causing widespread damage to the economy.

The report shows that UK households have more mortgage debt, relative to their income, than households in any other major economy, and that mortgage finance is the major component of UK household debt. Almost all of the increase in household indebtedness in the UK has been as a result of more mortgage borrowing. At the end of 2009, the UK household sector had debts totalling £1.53 trillion, of which £1.19 trillion (78%) was secured on dwellings.

The report shows that there have been four housing bubbles in the last 40 years: one in the early 1970s, a smaller one in the late 1970s, and those in the late 1980s and in the mid-2000s. House prices trebled between 1996 and 2006, rising 12% a year. Even over the last decade, the average house price has risen from £84,000 to £162,000, representing a 7% annual increase between 2000–2010.