Willem Buiter, professor of European political economy at the London School of Economics, says the shape of the mortgage market will change dramatically in light of the credit crunch.
Speaking at the Council of Mortgage Lenders annual conference in central London last week, Buiter, a former member of the Monetary Policy Committee, warned that there won’t be a significant recovery in the housing market for two years.
He says: “Once the market returns we won’t go back to LTVs of more than 100%, mortgages offered at a ratio of 5x to 6x income or self-cert deals.”
But Tony Ward, chief executive of Home Funding, believes there is still life in the sector.
He says: “We will see a return to self-cert lending because not all of it is bad. Self-employed customers will always need the facility.”
Buiter argues that the way to rescue the market is to address riskier assets on banks’ balance sheets while restoring new lending.
He adds: “We need something like the Troubled Asset Relief Programme in the US. We can’t let new lending be paralysed by mistakes of the past.
“If its liquidity schemes don’t work, the government may force banks to lend. I don’t foresee all of them being nationalised but the risk of that happening is increasing every day.”