The Budget Statement referred briefly to a forthcoming Treasury paper to set out firmer controls on the behaviour of financial institutions. Since the current crisis stems directly from irresponsible lending behaviour to ‘sub-prime’ borrowers, in a profit-driven drive to extend owner-occupancy and elevate house prices , a better regulatory regime is urgently needed.

But the Chancellor’s references in the Statement were to issues such as the remuneration and bonus culture, liquidity ratios and accounting transparency. The Z2K 2005 Memorandum showed that the underlying problem of growing unaffordability, leading to the bursting of the ‘lending bubble’, was more to do with the unregulated flow of credit far outpacing the growth of housing on the market to purchase.

The regulation needed is more in terms of some control on the aggregate amount of house purchase lending in relation to the number of transactions annually. Unless this issue is addressed it seems inevitable that market recovery will lead to a similar flood of purchase credit leading to another episode of price explosion and over-committed borrowing leading to repossession risk.

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