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Challenge to manage the state lenders

Although mention was made of the future benefit of the Crosby report, there was no up-front stimulus for the housing market or the provision of mortgages in the pre-Budget report.

The focus was instead on reducing the household costs in the UK through the immediate VAT reduction and hence getting disposable income back into the economy through consumer spending to kickstart confidence.

The Chancellor obviously believes the significant bank rate reduction to 3 per cent will be sufficient to stimulate homebuyer activity by driving more affordable mortgage payments.

The increased protection for consumers struggling with their mortgage payments will help restrict the level of repossessions through the extension of the mortgage interest scheme to loans up to £200,000, the launch of the free debt service and the extension of the mortgage rescue scheme to include second charge mortgages.

The commitment from main lenders not to initiate repossession proceedings within at least three months of going into arrears will, however, have a more calming effect on existing borrowers.

The Crosby report must be aimed as a medium to long term initiative and is unlikely to have a major impact on any recovery in the mortgage and housing market in 2009. The industry will support the adoption of new standards of transparency and standardisation in the mortgage-backed securities market but any solution will not be ready for further scrutiny until spring 2009 and will also need approval from the European Commission.

The key challenge facing the Chancellor is to manage the Government’s interests in the major lenders (through the UKFI) to stimulate the launch of competitive first-time buyer and homemover mortgages. Funding is still limited but the creation of better-priced fixed and tracker products will be the biggest signal to consumers that it is now the right time to move.

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