Borrowers need not be put on red alert - yet

An end to boom and bust Britain is Gordon Brown's favourite mantra, and a glance at the inflation, interest rate and growth figures since 1997 suggest his prayers are being answered. But the boom and bust that just won't go away is the house price cycle.

Those with long memories will recall the greatest ever property boom, in the early 1970s, followed by an equally great collapse, although one masked by galloping inflation.

The boomlet of 1978-79 ended in the early 1980s recession, and the late 1980s boom took most of the 1990s to unwind. This government, pencilling in an election, hardly wants its best-laid plans blown aside by the 1999-2000 property boom ending in the collapse of 2001. This week Mr Brown's lieutenant, City watchdog Howard Davies, was lecturing mortgage bosses about excessive lending, and the "danger zone" of London property prices.

Many found his comments curiously ill-timed; after all, annualised house price inflation peaked at 18% earlier this year and has fallen steadily since.

Yesterday's figures from Halifax show a fresh upturn, but hardly another boom. What's more, as Mr Davies said himself, the typical new mortgage as a percentage of the purchase price has actually fallen, with 75%-plus loans less common.

So why his concern? One real worry is the fast-rising level of household in debtedness, once personal loans, credit cards and other debts are brought into the picture.

But no matter how much Mr Davies and others exhort the industry about worsening debt levels, the government has done nothing to stop the tide of cheap loan junk mail. In any case, some of the new borrowing is perfectly reasonable, as individuals swap expensive credit card debt for cheaper personal loan debt.

But Mr Davies' main concern is the stretching of income multiples on mortgages. His figures show that more than a third of lending is now above the traditional limit of three times' salary.

Is such lending truly excessive? Since the last boom and bust, lenders have become a lot more sophisticated about who they lend to; affordability, judged by a range of outgoings, is the password to a home loan rather than simple salary levels.

It is also time to question whether the traditional limits on income multiples make any sense in a period of sustained low interest rates.

The price of a house is not the figure in the estate agent's window, it is how much it takes from your salary cheque each month to pay for it. Thus a £200,000 house at 5% interest costs little more than a £100,000 house at 10% interest.

Increasing the income multiple limit doesn't automatically suggest that homebuyers are over-extending themselves.

If the British economy really is successful in maintaining low long-term interest rates, we may have to grin and bear huge mortgage debts, made cheap by low servicing costs.

But heaven help us if interest rates break back upwards again. We may be in some sort of a new economy, but cycles have a nasty habit of reasserting themselves.

Rich folly


The rewards for failure were once again laid bare in brazen fashion yesterday. John Bryant, amiable but ineffectual co-chief executive of Corus, the Anglo-Dutch steel group, "resigned" (kicked out by a unanimous decision of the board) with his Dutch counterpart after a series of half-hearted efforts to restore it to profitability. Mr Bryant's pay-off is a hot-rolled, stainless £1m.

In the nearly two years since he became chief executive, first of British Steel and then, with Fokko van Duyne, of Corus, Mr Bryant has axed several thousand steelmakers' jobs - some 4,500 in the past year alone - to raise efficiency and reduce costs. They all leave with a few thousand in their back-pockets, the casualties of a merger dreamed up by Bryant and van Duyne that has manifestly failed to deliver.

In the first half of this year the old British Steel lost £226m in carbon steel while Hoogovens, its Dutch merger partner, made £74m profit in the same segment. Mr Bryant can blame the strength of the pound and the weak euro for the UK operation's failings and he has a point.

But the Corus board, correctly, blamed Mr Bryant and his colleague for failing to grasp the magnitude of the task. This is the failure of executive inability to see beyond the immediate market forces and plan for the future. Mr Bryant simply failed to cut UK capacity when all around him knew the writing was on the wall.

In the UK the rewards for overseeing a collapse in share price, profits and, above all, corporate morale are the same as Judith Keppel guessing the name of Eleanor of Aquitaine's husband. The latter is questionable but the former, repeated throughout boardrooms, is unacceptable.