Lenders look for extension of Special Liquidity Scheme

Lenders look for extension of Special Liquidity Scheme

The Bank of England’s Special Liquidity Scheme (SLS), which has been providing funds for UK mortgage lenders, is due to end on 20th October.

According to Swiss investment bank, UBS, British banks may have already borrowed as much as £200 billion from the scheme, well above the £50 billion mooted when it was launched in April of this year.

The market for mortgage securities has been virtually frozen since the credit crisis took grip last summer and the scheme has been a lifeline for UK banks because it has allowed them to swap mortgage-backed securities for tradable Treasury bills and fund their lending.

Despite the intervention, new home loans are still in short supply and the Council of Mortgage Lenders, whose members account for 98% of all UK mortgages, is now urging the Chancellor of the Exchequer to extend the SLS.

However, when the SLS was launched, the Bank of England’s governor, Mervyn King, made it clear that it was not intended as a bail out for lenders that had lent foolishly during the boom years of the housing market and that it could not be regarded as a bottomless pit.

Mortgage approvals for house purchases fell to a record low of 33,000 in July, down 71% on a year earlier, and if the scheme is wound-up in October as originally planned, lenders could be forced to cut back further.

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