Over at The Times, the Lib Dems’ shadow chancellor Vince Cable argues that the Financial Services Authority’s review on mortgages doesn’t go far enough to prevent a return to banks’ wild excesses. Here’s an excerpt:

Some of the more aggressive banks, seeking to expand their market share, are relaxing their offerings in terms of loan-to-value ratios. Any eagerness to return to former lending practices should be a source of concern. The housing market has not adjusted, at least yet, to realistic levels. Historical trends show a cyclical pattern of boom and bust, lasting roughly 15 to 20 years, going back to the mid-18th century. This time the “bust” hasn’t happened in the residential property market, as it has in commercial property.

The IMF has suggested that the market at its peak was overvalued by 30 per cent. Correction on that scale has happened only in some provincial cities where blocks of newly constructed, unoccupied flats overhang the market. Pundits are divided between those who believe that temporary constriction of supply has put a brake on a long deep fall in prices and those who believe that “this time it is different” and are eager to pile back into the market. …

What is needed is to recapture the old- fashioned building society model of lending that was lost in the feeding frenzy after demutualisation: lending with care and treating borrowers with respect. The FSA is right to stress safety with tighter verification procedures for self-certification. Affordability tests will make lenders responsible for properly assessing consumers’ ability to pay. FSA rules will in future cover buy-to-let (or lie-to-bet as it is now known). These are sensible, but modest, consumer protection measures.

But behind the technical details are bigger issues. It is deeply damaging for a wealth-creating culture that housing isn’t just seen as a nest, but a nest egg, a repository for the country’s savings and pensions. It isn’t sensible to run up large personal debts gambling on future house prices. Property speculation is not a productive industry. I suspect a bad attack of amnesia is encouraging the idea that nothing needs to change. …

What the FSA should do is to introduce a traffic-light system: a yellow light, a warning, for high-risk mortgages of 90 per cent or more; and a red light, a ban, for new mortgages of 100 per cent or more, the lending which got us into this mess in the first place. That way there is a clear signal that the wild excesses of the past will not return.

You can read Vince’s article in full here.