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Plan to revive mortgage lending UK mulls mortgage market options
(about 1 hour 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 if it wants to recover from a credit crunch.
The recommendation is part of a report commissioned by the Treasury that looks at possible ways to revive the UK mortgage market. The option is one of a number raised by Sir James Crosby as part of a report commissioned by the Treasury that looks at ways to revive the 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 until at least the end of 2010. It comes as figures showed new mortgage approvals had fallen to a record low.
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. 'Gloomy'
Gloomy Sir James is the deputy chairman of the City watchdog, the Financial Services Authority.
Sir James's assessment of the health of the British mortgage market is about as gloomy as it's possible to be. class="lp" href="http://news.bbc.co.uk/1/hi/talking_point/default.stm">HAVE YOUR SAYWhy should my taxes go to pay off other people's mortgages when I can't even afford a mortgage myself?Lisa Butler, UK class="" href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=5168&edition=${editionCode}">Send us your comments
FROM THE TODAY PROGRAMME class="" href="http://news.bbc.co.uk/today/hi/default.stm">More from Today programme According to the BBC's business editor Robert Peston, Sir James's assessment of the health of the British mortgage market is about as gloomy as it is possible to be.
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. In recent months, the availability of mortgages has been reduced by banks and building societies, and many of them are asking for larger deposits or are lending smaller amounts.
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. One option for improving the availability of mortgage finance would be 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 says in the report, 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. However, he pointed out that the government would need to ensure that any steps it took did not create a "moral hazard", where there was less of an incentive for participants in the market to behave responsibly.
Good idea? FROM THE TODAY PROGRAMME class="" href="http://news.bbc.co.uk/today/hi/default.stm">More from Today programme
The Liberal Democrat Treasury spokesman, Vince Cable, told the BBC that he was uneasy with the idea for two reasons. According to the BBC's business editor, any such plan where the government guaranteed bonds would essentially be seen as the taxpayer underwriting the mortgage market, and would be immensely controversial.
That is why the Chancellor is studying the proposal, but is not yet ready to commit to it, our correspondent said.
'Housing bubble'
The Liberal Democrat Treasury spokesman, Vince Cable, told the BBC before the publication of the report 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."
This is one of a number of other options outlined in the interim report, which also includes industry-led initiatives to facilitate the development of a "gold-standard" for mortgage-backed securities.
Sir James said he would work with interested parties over the summer months and produce his recommendations "as soon as possible thereafter".