A large part of the reason banks are not lending enough is because it is now virtually impossible to raise finance through securitisation. Bolton said the size of the mortgage market would shrink considerably if regulators and central bankers failed to act to stimulate this market.
The nature of the wholesale money markets, where lenders used to access finance to fund new mortgage lending, is international and its return to health requires co-ordinated action internationally between central banks, investors and issuers, he said.
Bolton added that the Bank of England was “impotent” in its ability to support the wholesale money markets without the backing of the Financial Services Authority, the European Central Bank and the Federal Reserve in the States.
“The only thing that will kick-start the money markets is if all regulators force lenders issuing mortgage backed securities to divulge account level detail to their investors,” he said. “There is still too much uncertainty about what assets underlie a security and investors aren’t buying because of that. Loan level detail is the only thing that will reassure them.
“There are two places lenders can get finance from – retail deposits and securitisations. The securitisation markets are still shut and there aren’t enough retail deposits in the UK to fund even the level of lending banks are doing at the moment. And increased capital requirements are yet another problem.
“Unless the securitisation markets reopen the mortgage market will shrink further. We haven’t reached the bottom yet.”
