Ross Bowen, managing director of Connells Survey & Valuation, said: "We welcome the CML's initiative to help restore more normal functioning to the mortgage market. The need for effective, decisive action is vital. With the wider economic and political impact from the downturn in the housing market becoming more defined, the clock is ticking."
Nicholas Leeming, director of propertyfinder.com, agrees: “The government is floundering and has singularly failed to offer any leadership to get the markets moving again. We welcome the CML’s proposals to get the mortgage market on its feet so that both new lending and existing books of mortgages can be effectively financed.
“Further measures to increase money market liquidity in the short term are also needed and we would urge the Bank of England to increase its existing facilities straight away. 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.”
The CML’s blueprint to address the issues is essentially a way of kick-starting the markets for UK residential mortgage-backed securities (RMBS) and covered bonds (CBs) back into life. These are parts of the market that have been dysfunctional since investor appetite disappeared in the wake of the credit crunch. Their loss has been the main cause of the contraction in the size of the mortgage market, and hence the lack of mortgage availability for many borrowers and higher mortgage costs. Mortgage lending is set to halve this year, with many borrowers who could afford new mortgages nevertheless being unable to access funds.
The plan would involve the Bank of England offering a repo facility (essentially a form of secured lending), using as collateral new UK residential mortgage backed securities (RMBS) or covered bonds (CBs). To qualify, the RMBS or CBs would first have to be sold to investors in a public issue. This is of crucial importance, as it would ensure that the market itself is essentially delivering the solution, with the repo facility simply acting as a catalyst to restore market confidence. The investors would take the credit risk in the usual way. But the repo facility would give them confidence, and so help to break the current vicious circle.
CML Director General Michael Coogan said: "If they act quickly, there is a window of opportunity here for the Government and the Bank of England to break the logjam in the housing and mortgage markets and underpin confidence in the financial system. 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 special liquidity scheme does not. And it can be implemented quickly, in an environment where speed is of the essence. 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."
