Last week’s open letter from the Council of Mortgage Lenders (CML) calling on the Chancellor to extend the Special Liquidity Scheme has been seen by some as a cap in hand gesture, and the message is obvious: “Please sir, I want some more”. However, when the scheme was launched in April, the Bank of England’s (BoE) Governor, Mervyn King, made it clear that the proposal was not a bottomless pit, nor was it intended as a bail out for banks that had lent irresponsibly during the good times.
UBS estimates that lenders may have used the scheme to borrow more than £200bn – a significantly higher figure than previous projections – highlighting that they are still relying heavily on the BoE to raise funds. With the Crosby Report failing to suggest a viable solution, now more than ever, the Government must work with the industry to reopen the mortgage securitisation market. Something must be done to increase confidence and allow the market to rebuild.
While the Government’s temporary raising of the Stamp Duty threshold has attracted widespread criticism, it has at least ended the uncertainty. Many industry commentators feel that the benefits will not outweigh the instability the Government introduced to the market by taking so long to lay out its plans. Now that a decision has been made, at least prospective buyers know where they stand.
One ray of light for the industry has been the welcome return of competition at the top end of the market, with Abbey the latest lender to slash its mortgage rates last week. Abbey made its move just a day after Lloyds TSB announced it was cutting its mortgage rates for the fifth time in a month. Lenders are now clearly reacting to the moves made by their rivals and attempting to grab a greater share of the prime market. n
