Mortgage lenders called on the Government yesterday to adopt new mortgage funding strategies in an attempt to restart the failing market.
In a proposal submitted to the Treasury, the Council of Mortgage Lenders (CML) urged the Government to act to "break the logjam in the housing and mortgage markets and to underpin confidence" by breathing new life into mortgage funding via UK residential mortgage-backed securities and covered bonds.
The CML believes that the Bank of England should offer a repurchase or "repo" facility - whereby these securities are bought back at a later date, with the investor assuming the credit risk. This facility, the council argues, would act as a catalyst to boost investor confidence and therefore market confidence. Only those vehicles first sold to investors in a public issue would be eligible "to ensure the market itself delivered the solution".
But Michael Coogan, director general of the CML, warned that the plan should be implemented quickly. He said: "The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending.
"This proposal has the virtue of being delivered through the market itself. Unlike a government guarantee, the investor keeps the credit risk. But it specifically incentivises investors, which the Bank of England's special liquidity scheme does not. 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, and so help the overall health and stability of the UK economy."
Nicholas Leeming, director of propertyfinder.com, added: "The Government is floundering and has singularly failed to offer any leadership to get the markets moving again. The CML's proposals could get the mortgage market on its feet so that both new lending and existing books of mortgages can be effectively financed.
"With access to new funding, lenders would have to compete with each other again – and that means they could finally bring their sky-high mortgage rates back in line with the base rates."