Mortgages Uncovered

The government are to face fresh pressure from financial lenders next week in a bid to ease funding conditions in the mortgage market when it is about to publish an interim report into the sector by Sir James Crosby, former HBOS chief executive.

The report which is due out on tomorrow is expected to set out a series of options for the government but will fall short of making any final recommendations.

The Council of Mortgage Lenders is one of the submissions to the report which has called on the government to grant new lending facility to banks along with the special liquidity scheme at the Bank of England that was introduced in April 08. This scheme allows lenders to exchange liquid assets based on mortgages issued prior to December 2007 for more of the liquid government bonds.

CML has also stated that it wants newer mortgages to be included within a new scheme that would be used as a type of secured loan with the Bank of England making it easier for lenders to raise finance.

A deadline of the autumn 2008 was given to Sir Crosby to produce his final report to be in time for the chancellor’s pre budget report. Sir Crosby was appointed by the chancellor, Alistair Darling, to chair a special group that would look at ways of boosting confidence back into the mortgage market, but since then the market has tightened even further.

Lending for home loans has shrunk by two 3rds as it becomes tougher for those lenders to raise the finance and become choosier about their customers. Data from the BBA this week showed that banks had granted 21,118 new mortgages within the last month, this is a drop of 67% year on year, the biggest fall since the body started collecting data in Sept 1997. This is having a huge impact on house prices, which are also rapidly falling.

Crosby’s working group were asked to look at ranges of options to boost the market which including broadening investor base for mortgage products plus boosting the issuance of covered bonds and as been expected to work with Bank of England, the FSA and the Treasury.

A spokesman at the Treasury has said that other options are being considered but any firm decisions have not been made.

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