The FSA's mortgage proposals are good for first-time buyers | Money | guardian.co.uk

The FSA's mortgage proposals are good for first-time buyers | Money | guardian.co.uk

It's an impressive act of lobby ventriloquism: banks, estate agents and housebuilders all declaring that tighter rules for mortgage lenders are bad news for first-time buyers; while MPs and ministers fret that clamping down on mortgages will trample on the aspirational dreams of millions of young people. This has become such an article of faith it seems almost counter intuitive to point out that, well, it's wrong.

Iconoclastic it may be, but the truth is that first-time buyers have been the biggest losers from looser mortgage lending. Tougher regulation would undoubtedly be in the younger generation's interests.

Let's look at the evidence. How did young buyers fare in the boom years? The decade after 1997 was the sunny uplands for no-holds barred mortgage lending – we were drowning in the stuff. Total levels of mortgage credit tripled, deposit barriers disappeared, buy-to-let boomed, and half of all mortgages became "self-certified". Access to money had never been easier. But, disconcertingly, in almost every consecutive year the number of first-time buyers fell. In July 2007 there were 15,600 different mortgage products available in the UK, but there were fewer first-time buyers than ever before, and we faced record levels of house prices.

In their postmortems of the boom years, the IMF and the OECD point out why this was so across pages of hard economic data. They found that the looser the levels of mortgage lending, the faster house prices rose above underlying incomes. Put bluntly: loose lending causes deteriorating affordability. More credit pushes up prices rapidly and new entrants are unable to keep up – unless they take on more and more debt.