From Hamish Chamberlayne.
I was deeply concerned when I read the front page article by Harry McRandle (JEP, 28 August).

Peter Seymour clearly hasn’t been following the global financial crisis that has been unfolding over the last couple of years. He appears to have a poor grasp of finance and economics.

Mr Seymour’s suggestion of 100%, multi-generational mortgages is madness. I would argue that even a five times salary mortgage is too much. Houses are unaffordable because prices have been driven up too high by the lax lending standards prevalent over the last decade. The crucial mistake people make when analysing the housing market is to place too great an emphasis on the supply and demand of physical housing.

Certainly this is an important factor in determining prices but an even more important factor is the price and availability of credit. It doesn’t take a genius to work out that house prices will automatically rise to meet or exceed the maximum multiple of the average salary being offered by lenders. Mr Seymour’s suggestion for even bigger mortgages will just make houses even more unaffordable for the next round of first time buyers.

Also, he fails to discuss the implications of an increase in interest rates. Time and time again I have spoken with mortgage brokers who wax lyrical about the affordability of large mortgages in these times of low interest rates.

However they never alert the borrower to the dangers if interest rates have risen after the two to five year fixed deal has come to an end. This is where an understanding of international finance and economics is crucial.

The interest rates we pay on our mortgages are ultimately determined by the interest rates at which the UK government can borrow. Currently the UK is in a precarious financial position. After the banking bailouts, rising unemployment and falling tax revenues, UK government debt is well on its way to exceeding 100% of GDP.

Furthermore, some people estimate that more than 40% of UK debt is foreign owned. If the UK government doesn’t get its fiscal house in order then the Bank of England will fast lose its ability to keep interest rates low. A five times salary mortgage is not so affordable when interest rates are approaching 7% to 8%.

Mr Seymour should take a trip to Japan which had a credit fuelled property boom in the 1980s. At its peak the Imperial Palace in Tokyo was valued by some as more than the value of all the real estate in the state of California and the only way to get on the property ladder was to take out a multi-generational mortgage.

Since then Japanese property prices have declined almost every year for the last 20 years. Ask a Japanese person about mortgages (I have) and they shudder. After 20 years of misery many of them avoid debt altogether.