While widely anticipated, the decision to launch a scheme allowing lenders to swap their high-quality mortgage-backed assets for Treasury Bills has largely been welcomed by industry analysts. Obviously, it does not go far enough, and there are some gripes, but surely any help with liquidity that does not directly bail out lenders or place a greater tax burden on the populace is better than none?
The number that has been bandied about has been £50bn, but this is by no means the upper limit, and depending on the take up, this amount could be extended. The Government is clearly hoping this scheme will kick-start lenders into cleaning house and sorting out their losses from the sub-prime crisis in the US. When and whether this translates into a freeing up of the market, and what impact it has on the availability of new funds and pay rates, is not something that can be called at this stage.
However, unlike the capital that has made available to lenders up to now – which has been largely unappealing due to the cap-in-hand nature of the loans – this move does not look like it is bailing lenders out.
What would be beneficial, given the size of their contribution to the market, would be if this funding was widened to include specialist lenders.
Following hot on the heels of this announcement, the Chancellor held a meeting with the Council of Mortgage Lenders (CML) and Finance and Leasing Association (FLA) to impress the need for lenders to take their responsibilities seriously.
Under the auspices of taking coordinated action, this smacks of a public relations stunt, which helps no one but the Chancellor.
The CML and FLA cannot compel their members to do anything they do not want to do, and what lender wants to repossess houses, especially in a flat or falling market? Aside from the prohibitive costs of large-scale repossessions, the reputational damage would be something that some might not recover from.
The Government can make a positive difference, but history will remember it better for taking swift action and not appearing to make capital out of the situation. n
