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The King- size crunch

Bank of England governor Mervyn King’s heavy-handed rejection of proposals to help the mortgage market floated by Sir James Crosby shows there is little consensus on what needs to be done in the homeloan sector.

After giving the Bank of England’s inflation report recently, King attacked the presumption that the bank would be advising the Chancellor to do anything to help bring liquidity to the credit markets.

He said: “It would be a very dangerous move if the Government saw its major role as guaranteeing lending. Why should the taxpayer take on the risk of borrowing by individual borrowers, some of whom are risky? It is the lenders who should take the risk and assess for themselves the riskiness of that lending.”

Crosby’s interim report into the liquidity crisis out forward ideas for an extended special liquidity scheme and Government-backed securities to ease illiquidity.

King has likened this approach to that of the US Federal Bank, which has powers to bail out national mortgage backers Freddie Mac and Fannie Mae, a practice that is risky and costly for the US government.

Wave Lending chief executive Colin Snowdon says: “King does not want to be helpful. He is a purist who wants to wait and let the market sort itself out. The problem is that he is an economist first, a banker second.”

Intermediary Mortgage Lenders’ Association executive director Peter Williams admitted last week that he expects the Government to do nothing to help stranded lenders which rely on residential mortgage- backed securities to fund their lending business.

But John Charcol senior technical manager Ray Boulger believes the Government must do something and may end up at loggerheads with King.

Nationwide group executive director Matthew Wyles says: “I think there is very little that a sovereign Government can do to help. Fundamentally, this is a market issue.”

Stroud & Swindon sales and marketing director Linda Will says the problem is not that the financial powers cannot do anything but they are undecided what to do.

She says: “There are massively diversifying opinions between the tripartite authorities. The BoE is solely committed to lowering inflation, which is their job. The FSA is still stinging after Northern Rock’s fall so it is singularly focused on not letting something like that happen again and the Treasury is facing the prospect of a recession. There is no focus and this is strangling the lending market.”

The Council of Mortgage Lenders considers that focus from the authorities is key and it will continue to promote possible changes to the liquidity scheme out forward by Crosby.

Imla also believes these proposals could get the markets moving.

The House Builders’ Federation says all lenders and housing professionals need to work together. A spokesman says: “No funding means no mortgages, no mortgages means no movement in the housing market and no movement means no new homes. We are all in this together.”

But some industry voices are concerned that the big clearing banks and the building societies, which do not wholly rely on securitised funding, are going to sit on the fence. Thanks to the negative net mortgage growth of many of the specialised securitising lenders, banks such as Barclays are enjoying unprecedented mortgage market share.

Checkmate Mortgages executive chairman Stephen Knight says: “All the divisions are coming out. The clearing banks are having a field day with market share and it now seems the Bank of England are strongly lobbying the Government to do nothing.”

Williams says: “The Government is being battered on all sides from different parties and things are very complicated.”

Will says: “There is not a lender who is not affected by this. Even the big banks are lobbying to get things moving in the markets.”

Knight believes the only way to get things done is to go straight to the Government with proof that not helping funding will be catastrophic. “We need to get politicians sitting up and taking note, we cannot rely on Crosby. By engaging debate with them and offering something back to the borrowers, we can make a difference.”

Snowdon says: “Look at the US government and the pro-active way it has gone about trying to save its mortgage market. We need to be doing the same over here. Kickstarting the markets will have its costs but right now the system is not working. We need some joined-up thinking fast to get funding going again.”


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