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Plan to revive mortgage lending Plan to revive mortgage lending
(10 minutes later)
The government may have to give a taxpayer guarantee to billions of pounds of mortgage market bonds.The government may have to give a taxpayer guarantee to billions of pounds of mortgage market bonds.
The recommendation is part of a report commissioned by the Treasury that looks at possible ways to revive the UK mortgage market.The recommendation is part of a report commissioned by the Treasury that looks at possible ways to revive the UK mortgage market.
But such a move would be controversial and could be seen as the partial nationalisation of mortgage finance.But such a move would be controversial and could be seen as the partial nationalisation of mortgage finance.
The report expects the shortage of mortgage finance to persist till at least the end of 2010.The report expects the shortage of mortgage finance to persist till at least the end of 2010.
The assessment of the outlook for mortgage finance is due to be published later by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.The assessment of the outlook for mortgage finance is due to be published later by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.
GloomyGloomy
Sir James's assessment of the health of the British mortgage market is about as gloomy as it's possible to be.Sir James's assessment of the health of the British mortgage market is about as gloomy as it's possible to be.
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
This former banker blames a collapse in demand for mortgage-backed securities, or investments created out of mortgages and sold to banks and big investors.This former banker blames a collapse in demand for mortgage-backed securities, or investments created out of mortgages and sold to banks and big investors.
This is not just a City of London phenomenon.This is not just a City of London phenomenon.
Sir James fears that a long-term mortgage drought would turn the current downturn in house prices and consumer spending into something considerably worse.Sir James fears that a long-term mortgage drought would turn the current downturn in house prices and consumer spending into something considerably worse.
So he believes it may be necessary for the government to guarantee new better quality mortgage backed securities, to re-stimulate demand for these securities.So he believes it may be necessary for the government to guarantee new better quality mortgage backed securities, to re-stimulate demand for these securities.
That may be necessary, Sir James is expected to say later this morning, in view of the government's objectives of supporting financial stability and operating in the long-run interest of consumers and the economy.That may be necessary, Sir James is expected to say later this morning, in view of the government's objectives of supporting financial stability and operating in the long-run interest of consumers and the economy.
But it would be seen as the taxpayer underwriting the mortgage market, the partial nationalisation of mortgage finance, and it will be immensely controversial.But it would be seen as the taxpayer underwriting the mortgage market, the partial nationalisation of mortgage finance, and it will be immensely controversial.
Good idea?
The Liberal Democrat Treasury spokesman, Vince Cable, told the BBC that he was uneasy with the idea for two reasons.The Liberal Democrat Treasury spokesman, Vince Cable, told the BBC that he was uneasy with the idea for two reasons.
"First of all this is a straightforward proposal to let the government take the risks for private lending and companies will continue to make their profits from it," he said."First of all this is a straightforward proposal to let the government take the risks for private lending and companies will continue to make their profits from it," he said.
"Secondly because it could have an effect of simply reflating this housing bubble that is now bursting in a rather painful way and reflate it in a way that prevents first time buyers ever getting on to the ladder.""Secondly because it could have an effect of simply reflating this housing bubble that is now bursting in a rather painful way and reflate it in a way that prevents first time buyers ever getting on to the ladder."