Government under fire over mortgage moves

The Government's response to the mortgage lending crisis has been confused and ineffective critics warn, with calls for new solutions gathering pace as repossessions rise and mortgage lending figures continue to plummet.

The Council of Mortgage Lenders (CML) estimates that there was £258bn worth of gross mortgage lending in 2008, down dramatically from £363bn last year.

In his pre-Budget report last month Chancellor Alistair Darling announced that mortgage lenders will now have to wait three months before beginning repossession proceedings against borrowers, and RBS said this week that it would not begin the process for six months. But speaking to the CML Annual Conference yesterday, Liberal Democrat Treasury spokesman, Vince Cable, said: "The existing proposals on repossessions are woefully inadequate; the Government's mortgage rescue plans cover only 6,000 households, according to the CML, despite the fact that 170,000 households are estimated to have been in arrears for more than three months."

"The Government must not duck its responsibility" Cable continued. "It must appoint directors to the nationalised and semi-nationalised banks and clearly set out how these banks should operate. The centrepiece of the Government's strategy must be to maintain lending to British companies to keep the economy going.

He warned that the focus must now be on building innovative solutions to the lending crisis. "The industry should now be exploring new products to restore faith in mortgage lending," he said. "One option for providing safe, simple and cheap mortgages would be to insure them through the market for the first 5 years to cover all but deposits."

But Jon Pain, managing director for retail markets with the Financial Services Authority, also warned that lenders themselves must concentrate on treating customers fairly when they go into payment arrears in a bid to help combat growing repossession concerns.

"We want each lender to … review current practice to ensure corners are not being cut, and to only take repossession action where all other reasonable attempts to resolve the position have failed."

"There are difficult questions facing us about the future of the mortgage market," he added. "It is unlikely to be anything like the recent past. Now is the right time for us to address the big issues... learning from the past, and making sure that we get a more sustainable market in the future - where lenders have adequate liquidity, funding and capital; there are strong systems; and customers enjoy the benefits of a vibrant market but are not exposed to unnecessary risk."

He warned that the focus must now be on building innovative solutions to the lending crisis. "The industry should now be exploring new products to restore faith in mortgage lending," he said. "One option for providing safe, simple and cheap mortgages would be to insure them through the market for the first 5 years to cover all but deposits."

But Jon Pain, managing director for retail markets with the Financial Services Authority, also warned that lenders themselves must concentrate on treating customers fairly when they go into payment arrears in a bid to help combat growing repossession concerns.

"We want each lender to... review current practice to ensure corners are not being cut, and to only take repossession action where all other reasonable attempts to resolve the position have failed."

"There are difficult questions facing us about the future of the mortgage market," he added. "It is unlikely to be anything like the recent past. Now is the right time for us to address the big issues... learning from the past, and making sure that we get a more sustainable market in the future - where lenders have adequate liquidity, funding and capital; there are strong systems; and customers enjoy the benefits of a vibrant market but are not exposed to unnecessary risk."