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£300bn funding gap for mortgage firms

’Very unlikely’ that lenders can repay cash on time

The Council of Mortgage Lenders believes it is “very unlikely” that lenders will be able to repay Government support within the planned timescales, even if wholesale markets return to normal.

In a report on the future of mortgage funding published last week, the CML warns: “Even with wholesale markets functioning again, it is very unlikely that lenders will be able to repay Government funds in full on the current timetable of the special liquidity scheme and credit guarantee scheme.”

The CML says this suggests that “an extension of the period of Government support will be required” and warns that with the SLS and CGS both drawing to a close by 2014, there is a “major uncertainty” hanging over the future of the mortgage market and how lenders can plug a £300bn funding gap.

It also warns of a distortion caused by Government support on retail deposits and unsecured bonds from banks and societies, which may lead bondholders to believe they do not need to understand the risks of their investments because it is underwritten by the Government. It warns that this is creating a moral hazard.

The CML says the Government has not given similar support to residential mortgage-backed securities or covered bonds, which is needed for competition to return to the mortgage market.

John Charcol senior technical manager Ray Boulger considers it is probable that the terms of the special liquidity scheme will be renegotiated
because banks are not likely to be in a position to repay the Government. He says: “I cannot see any way that the market is going to be in a position to provide the finance to repay it.”

Nationwide group distribution director Matthew Wyles has been elected chairman of the CML for a second year. Wyles will be supported by
new joint deputy chairman and GE Money Home Lending chief executive Colin Shave, who has taken over from Paragon managing director John Heron.

Shave will be joining present joint deputy chairman Martijn Van der Heijden, who is head of mortgages at HSBC.

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