Economic literacy in the comments at The Telegraph

The Telegraph re-hashed that press release from the Council Of Mortgage Lenders yesterday, you know the one...

Almost 4m homeowners, nearly half the total, would have been refused mortgages if tougher lending rules proposed by the Financial Services Authority had been operating over the last four years, the Council of Mortgage Lenders said.

Well duh. This is a circular argument: by lending people five times their income rather than three, the price of an average house was pushed up from £105,000 to £185,000 (assume average household income £35k plus £10k deposit). So the only reason that people had to borrow totally reckless amounts was because the banks were prepared to lend totally reckless amounts.

Had the banks stuck to three times income, no first time buyer would have needed to borrow more than three times their income; and so they would not have been refused a mortgage. Rather disappointingly, most of the comments say exactly the same thing, see for example tdhp:

This is a bit of spin I think. If half of all mortgages would have been rejected, then prices would not have been able to rise (simple demand and supply rules). The demand would not have been there. Therefore prices would have been lower, then more people would have been able to afford them under the tighter rules.

The fact is that the housing market was inflated by greedy estate agents, sloppy lending, and ultimately by government who kept stoking the fire claiming there would be no bust, as it had abolished bust.

Ah well.