Mortgages Uncovered

Governments will always look at what their predecessors have done before making decisions. The 1991 and 1992 stamp duty holiday did help to stabilise the housing market, so it is no surprise now that the Treasury have been looking at possibly repeating it. However, this does not excuse the seeming confusion on the issue, which the market needs just like a hole in the head.

I should imagine that the long awaited housing market package this autumn will also include a stamp duty holiday, however, the problem it is trying to fix is slightly different to the one in the early 1990s, which was clearly spelt out by a recent interim report prepared for The Treasury provided by James Crosby’s.

With nearly one in four outstanding mortgage loans within the UK (£257 billion out of £1,200 billion), have been funded by issuing mortgage backed securities. Now these markets have dried up. Lenders are desperately trying to bridge the gap through attracting savings from their depositors, but no one is sure that this will be enough.

According to James Crosby some lenders will still remain “severely constrained” based upon their ability to offer mortgages, with the same severe shortages likely to last right up to 2010.

The Council of Mortgage Lenders (CML) has pressed hard for a faster solution through the means of the Bank of England in accepting new mortgage backed securities as collateral. Whilst Mervyn King who is the Bank’s governor is skeptical whilst Alistair Darling appears a little more sympathetic.