CML offers blueprint to kick-start mortgage market

The Council of Mortgage Lenders (CML) has drawn up a plan that it believes will address the funding problems in the UK mortgage market.

A copy of the blueprint, which the CML says could help to significantly reduce the severity of the downturn in the housing market, have been submitted to the Treasury.

Members of the Crosby review of housing finance have also received copies and the CML has expressed its disappointment that the review is unlikely to offer policy recommendations in its interim report.

The Council believes that speed is of the essence and has proposed means of kick-starting the markets for UK residential mortgage-backed securities (RMBS) and covered bonds (CBs).

These markets seized up last autumn with the result that interest rates have risen and the number of home loans available has declined so drastically that lending is expected to halve in 2008.

The plan involves the Bank of England offering a repo facility (a form of secured lending) that would use as collateral to new UK RMBS’ or CBs.

To qualify, the RMBS or CBs would first have to be sold to investors in a public issue.

The CML says this would ensure that the market delivers the solution, with the Bank’s repo facility acting only as a catalyst to restore market confidence.

Currently the Bank of England’s Special Liquidity Scheme (SLS) will not accept RMBS and CBs as security if they contain mortgages issued after December 2007.

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