Crawshaw said back in October the CML had predicted that, year on year, there would be a slow down of around 15% in terms of net lending, with consumer demand underpinning net lending of around £90bn this year, down from £108bn in 2007. However, in the last few months, he said it had revised this picture in the light of slightly lower demand for mortgages. Adding that: “…potential borrowing still significantly exceeds the industry’s collective capacity to supply funds. It is therefore a real possibility, looking forward from today, that net lending in 2008 could reach only half last year’s level unless additional funds.”
He went on to say that the Bank of England has diagnosed the overhang of assets as the disease, whereas the CML sees it as a symptom. “We think that lenders are hoarding liquidity because they’re concerned about whether they will be able to access future funding and are managing pipelines of business very cautiously. They’re worried less about the here and now and credit risk in the UK mortgage market, than the uncertainty about whether they’ll be able to get funds when they need to refinance their own maturing debt commitments and new mortgage offers they are seeking to make.
“If our diagnosis is right, then deeper and longer term repo facilities – extending beyond the 3-month facility to 12 months or perhaps even 24 months – would definitely begin to help to address lenders’ concerns.
“And kick-starting the market for new issuance of mortgage-backed securities – perhaps by incentivising the kind of stable, domestic investors such as pension funds that would fit this market well – is something that the CML believes the Bank should seriously consider. If we await the return of global investors without taking action to reinforce why our market is different to the United States, we must accept that our new business levels will shrink substantially and for a significant period of time.”
