David Miles, chief economist at Morgan Stanley and an adviser to the Treasury, believed that the measure was necessary to fill a £60-£80 billion shortfall in mortgage lending in 2008 and prevent a situation where the housing market would be frozen by a lack of available credit.
Miles believed that £250 billion of mortgage lending was currently sat with mortgage lenders and if this was not shifted, they would have to charge higher rates or stop lending altogether.
Responding to the idea, the Council of Mortgage Lenders (CML) said: “While we don’t comment on specific ideas, we recognise that there is a shortfall there. We expect the authorities to look at a range of options and intervene aggressively to restore normal conditions to the wholesale funding markets.”
However, Mark Sismey-Durrant, chief executive of Heritable Bank, questioned whether the government or Bank of England would want to do such a thing, especially after the Northern Rock crisis.
“There are a lot of people sitting on loans that they want to get rid of and it would be a way of disseminating those loans. But would the government do it? I’m not sure there is the appetite for it as it is covering billions of debt from Northern Rock.
“Also, I would question to what extent Freddie Mac has been a good thing in the US and its long-term viability once normal credit conditions have returned.”
