The report, Forever blowing bubbles, said damage had been done to the UK economy by four housing bubbles in the past 40 years and calls on the government to “hold firm” in the face of industry lobbying and introduce the measures to avoid another bubble.
Nick Pearce, IPPR director, said: “We need tougher mortgage market regulation from the Financial Service Authority, especially caps on loan to value and loan to income ratios.”
The IPPR’s report showed the UK had the highest LTV ratio of any OECD country before the crisis, apart from the Netherlands, and said this was one of the main causes of the credit crunch.
In addition to tighter rules on lending, the group has also called for deposit requirements on buy-to-let mortgages to be raised to ensure that rental income covers repayments.
The group said that such a move could help to deter “small time speculators” from looking for big gains from the buy-to-let market, which it said had fed house price bubbles in the past.
The report identified loose mortgage lending as the primary cause of Britain’s recent house price boom.
The group said that although the UK has a long term undersupply of houses, the availability of cheap credit exacerbated the damaging volatility in the housing market.
It also warned that the country’s “addiction” to house price inflation was bad for the economy, and said the government should make greater house price stability a “central plank” of its economic policy.
Pearce added: “The Housing Minister, Grant Shapps, has tentatively floated the idea of aiming for house price stability but he and George Osborne should go further and make it an explicit policy objective.”
