Professor Alan Ahearne:

I am satisfied that the regulator could have done something about that. The 100% mortgages in particular were extremely dangerous instruments. They were being used by people who clearly could not afford a property, and they were used to get them into the property market. I remember, when I lived in the United States, hearing guys talking at half time during a football match about buying houses using these exotic mortgage products in which they got very low interest rates for a few years and then they were restructured. The point is that one must refinance before the interest rate is reset, or one sells the property before it resets, so the higher interest rate is irrelevant. That is an instrument that allows people to get into the property market, but boy, is it dangerous, because if the property market falls you are caught. These seem to me the same sort of thing. Loan-to-value rates of 100% seem fine if prices are rising, because if house prices go up by 20% the following year a house will have generated equity, so as long as the market is going up it is fine, but the problem is that if the market goes down one is in negative equity. I was very concerned about that particular development.