In a report on the future of mortgage funding, the CML warns that “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 “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 mortgage market and how lenders can plug a £300bn funding gap.
The CML also warns of a distortion caused by Government support on retail deposits and unsecured bonds from banks and larger building 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.
The CML warns this is creating a moral hazard.
It 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.
In a separate paper responding to the mortgage market review, also published today, the CML warns the FSA not to become a “price regulator” in its work on unfair charges, arguing that firms are not trying to exploit customers through profiteering.