Plans Put Forward To Lift UK Mortgage Lending
July 16, 2008
Mortgage lenders have drawn up a plan to help kick-start the mortgage market amid falling house prices and a squeeze on the availability of home loans.
The Council of Mortgage Lenders (CML) have put forward a plan to free up UK banks and building societies to offer new home loans.
It wants the Bank of England to guarantee a market in mortgage-backed securities and covered bonds.
It hoped This would encourage investment in the market for these products, pushing funds back into mortgage lending.
Lack of Confidence
The CML said that the biggest issue in the mortgage market was the lack of available funding to support new mortgage lending.
This has led to a squeeze in number of mortgage deals on the market and the cost of these loans rising.
The lenders’ body wants the Bank to essentially offer a form of secured lending. Which is hoped would help persuade investors to buy mortgage-backed securities - something that has dried up during the credit crunch.
The scheme could be set up rapidly and would act as a catalyst to restore market confidence, the CML said.
Unlike the Bank of England’s Special Liquidity Scheme - which allowed banks to swap £50bn of mortgages for government bonds - it would cover new mortgages and investors would still take the credit risk.
“A year into the credit crunch, there is no merit at all in waiting until the autumn before taking steps that will help the housing market to remain more resilient,” said CML director general Michael Coogan.
The plan would probably receive a cool welcome from those who believe it would involve the state having to underwrite the housing market.
Others might suggest that the drought in mortgage finance would continue without any action.