Lenders have warned the Treasury and Bank that without liquidity the level of lending in the UK will fall significantly.
The move has been backed by the Council of Mortgage Lenders (CML), the European Securitisation Forum and private banks in order to preserve the future of the industry.
Following the recent move by Northern Rock to sell off parts of its business, lenders are looking to secure their future while the money markets continue to remain on hold due to the credit crunch.
Apart from a small deal in Holland, no bank has managed to sell any retail mortgage-backed securities in Europe in a public offering since August, and on current trends experts estimate that the outstanding values of mortgages in the UK will rise by £90 billion in 2008.
Without the securitisation market reopening, mortgage providers believe that there will be a £30 billion shortfall of lending, which is potentially enough to make lenders cut the amount of money they can lend to households.
Proposals from bankers included suggestions that the Bank should make a permanent commitment to accept mortgage loans as collateral in its money market operations. Or as an alternative it should underwrite issues itself or invest public funds in the securitisation sector.
Mervyn King, governor of the Bank of England, said: “Taking the easy option without looking to the long-run consequences of those actions is damaging.”
Sarah Robson, press officer at the CML, said: “We encourage everyone to do what they can to get the market back on its feet.”
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