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Property price rise alarm aims to prevent next crisis

The Property Industry Alliance has developed a warning system that it wants lenders to adopt to help prevent another financial crisis.

 

‘This is about giving regulators and banks a relatively scientific warning system to prevent lenders overextending themselves in a boom, suffering losses that prevent them from lending after a crash when the economy most needs credit,’ he said.

Clarke added that regulators and lenders consistently fail to recognise the risks at the end of the cycle, which means they allow their loan activity to spiral as property becomes increasingly overvalued. This can result in huge losses, creating the potential for a financial meltdown.

De Montfort University research shows a record £82 billion was loaned in 2006, 89% of lenders planned to increase their new lending in 2007. However, after the crash all of the write-offs related to loans issued between 2005 and 2007.

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