Treasury 'may aid mortgage lenders'
Updated on 28 July 2008
Alistair Darling is considering helping fund new mortgages to aid stricken mortgage and housing markets, it has been reported.
The Chancellor is said to be looking at proposals due to be mooted on Tuesday in Sir James Crosby's review of mortgage finance that could widen the scope of the Bank of England's £50 billion rescue package.
The Treasury may seek to free up the log jam in mortgage funding markets by allowing banks to trade in securities backed by new mortgages in return for more easily tradable Government bills, according to the Financial Times.
The scheme currently applies only to old mortgage assets held before the start of the year and lenders are anxious that the existing package is not enough to ease the deepening credit crisis.
Sir James - the former chief executive of Halifax Bank of Scotland - is also understood to be working on proposals for a "kite-marking" system for high-quality mortgage-backed securities to instil confidence after the credit crunch devastated wholesale funding markets.
But the Crosby review will hold off from making final recommendations until the autumn, with the Chancellor not understood to be planning any announcements until the Pre-Budget Report. Lenders have already voiced their concerns at the delay in taking further action to kick-start the mortgage market.
The Council of Mortgage Lenders said earlier this month that the Government must "act swiftly" to resolve the mortgage drought. It warned that mortgage lending was set to halve this year, with the lack of financing expected to further hit the UK's property market and housebuilding sector.
However, plans to extend the Bank of England's so-called Special Liquidity Scheme may meet with opposition from the central bank. Bank Governor Mervyn King said on launching the SLS in April that it was designed to "increase the liquidity of the banking system as a whole" in order to protect the wider economy.
He said its aim was not to restore the mortgage markets to the "excessive lending" seen before the credit crunch hit last summer and that it would stop short of covering new mortgages as it did not want to be seen to be propping up the market.
Sir James, who was in charge of HBOS between 2001 and 2006, was charged with leading the mortgage review in April. He is heading a team of outside experts and officials from the Bank of England and Financial Services Authority.
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