The body representing Brit-ain's banks yesterday rejected calls for the Government to guarantee mortgages in an effort to kick-start the housing market.
The British Bankers' Association threw its weight behind the Governor of the Bank of England, Mervyn King, who has made no secret of his opposition to such a "dangerous" move. The Chancellor is rumoured to be supportive of the Bank's stance. No 10, by contrast, is understood to have been behind a series of leaks about various mortgage-guarantee schemes.
Angela Knight, chief executive of the BBA, said: "It's the money market we should be looking at, not that sort of government guarantee... I don't think it's for the Government to intervene. Once you start, where do you stop?"
Less welcome to the Bank of England, however, may be the BBA's enthusiasm for extending the Bank's Special Liquidity Scheme, which allows banks to swap unmarketable mortgage- backed securities for gilts. "We think that is the way to go," said Ms Knight. "That is enhancing what a central bank does, it's not government intervention."
The BBA's policy echoes calls from the Council of Mortgage Lenders, which also represents banking interests and wrote recently to the Chancellor: "We believe that an early announcement of the renewal/extension of the Special Liquidity Scheme and any other measures being planned will help to resolve market uncertainty."
The banks would like the SLS to apply to new mortgages; the Bank has rejected this. Mr King may repeat his scepticism about state aid to the housing market during his session with the Treasury Select Committee today.
The Government's position is that it has asked Sir James Crosby, former chair of HBOS, to review the options and report, which he is scheduled to do soon. Sir James published an interim report last month, which canvassed the possibility that the best option for ministers would simply be to do nothing. But the crisis in property is piling pressure on ministers to announce something in time for the Labour party conference, starting on 20 September. The US's rescue of Fannie Mae and Freddie Mac has also, for some, strengthened the case for a similar UK guarantee.