The withdrawal of these foreign funds meant that about 40% of the credit market by value had been lost.
RICS Chief Economist, Simon Rubinsohn, said: "The decision to implement a guarantee scheme for asset backed securities along the lines recommended by Sir James Crosby should provide much needed support for the housing market which is continuing to struggle in the face of the dramatic decline in the availability of mortgage finance. Providing guarantees should help to revive investor interest in asset backed securities.
If this strategy is successful, it will offer lenders the opportunity to use wholesale funds to help supplement saver's deposits as a source of finance for new mortgage loans. This is an important first step in putting in place the conditions for a return to an orderly housing market.
RICS also sees the introduction of an Asset Protection Scheme as a key step in enabling lenders to increase the provision of finance more generally across the economy. The collapse in lending for house purchases has led to the emergence of a huge gap between the demand for and the supply of mortgage funds.
This was demonstrated most visibly in the recent RICS Housing Market Survey which shows 'new buyer enquiries' currently growing at their fastest level since August 2006. By way of contrast, the total number of mortgages actually being approved is now at a historic low."
