Tony Ward, chief executive of Homefunding, says that the Bank of England is playing a dangerous game by refusing to say it will step into the breach if banks and building societies cannot find finance to fill the funding gap over the next two years.
In total £765 billion has to be found by the market in the next two and a half years – the equivalent of £25 billion per month.
Ward says that the funding gap in the mortgage market is "terrifying" and that the markets will find it "impossible" to find the funds they need by 2012.
The Bank of England Financial Stability Report in June estimated £165 billion would have to be repaid to the Special Liquidity Scheme, £120 billion to the Credit Guarantee Scheme and a whopping £480 billion of unsecured senior debt, subordinated debt, covered bonds and securitisations would have to be refinanced by the end of 2012.
Ward told Mortgage Introducer: “The plain truth of the matter is the industry and markets cannot fund this. The Bank of England is quite rightly saying it won’t fund it - at the moment it has to. But I think there is a very high stakes game being played here.
“The Bank is applying every bit of pressure it can muster to banks and building societies to get them to recognise that they must find more capital to repay this debt, but ultimately if the banks have to fold, the Bank of England won’t let that happen.”
Ward said he was concerned that the spate of good results from UK banks reporting interim results last week “had put a gloss over the real issues”.
And he added: “There seems to be a general feeling that the banks are recovering and we’re getting back on an even keel but things are going to get much, much worse unless this funding gap is dealt with – for the mortgage market, housing market and the wider economy.”
Ward admitted that the Bank of England did appear aware of the vital importance of this issue, but he was concerned the Bank remained so tight-lipped about how banks and building societies could fund this gap unassisted.
He added: “The Bank is clearly well focused on this but it has also made it very clear that it expects the industry to find this money itself and that there will be no further government or Bank of England bail-outs. But can they avoid it? Frankly I doubt it.”
