Mortgage lending will take two years to recover

A government initiated report into the UK mortgage market has been published today.

The work has been prepared by Sir James Crosby, a former chairman of Halifax, who is heading a review into improving wholesale mortgage funding.

Final recommendations will be published in the autumn but in the meantime the report predicts that current funding difficulties will take two years to overcome.

It also suggests that the government may have to guarantee billions of pounds of mortgage market bonds to free-up lending.

Since the onset of the credit crunch last summer, banks lost confidence in lending to one another because they were fearful of the scale of write downs that could result from the US sub-prime mortgage crisis.

The banks themselves were unsure which financial institutions held the worst of the bad debt and the interbank lending system suffered as a result.

Interest rates rose and High Street lenders became increasingly selective about borrowers, demanding high deposits and impeccable credit histories for their best mortgage deals.

UK house prices have now been falling for ten consecutive months. Some potential buyers have delayed their purchases in anticipation of a crash and others have been unable to obtain the funds they require.

According to the Council of Mortgage Lenders, mortgage lending could halve during 2008, with dire consequences for the housing market, the nation’s housebuilders and the wider economy.

The Chancellor of the Exchequer, Alistair Darling, is reported to be considering a £40 billion plan that could provide the security the market needs.

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