CML responds to BoE credit conditions survey

Thursday, 3 July 2008 12:00 AM

Reacting to the publication of the latest Bank of England credit conditions survey, the Council of Mortgage Lenders today observes that there is a window of opportunity for the authorities to intervene to help reinstate wholesale funding sources to the mortgage market. The CML urges the Crosby review to report with recommendations that can provide immediate support to funding markets.

The credit conditions survey reinforces that demand from consumers for house purchase lending is now declining. This matches anecdotal evidence suggesting that the reduction in mortgage availability is causing some consumers to give up, even though they would be buyers in a more normal market, because they do not believe they will be able to get a mortgage.

This problem can only be solved by an increase in the supply of funding to the mortgage market. And this supply of funding to the mortgage market will only improve in the short term with concerted action to make it happen. There is only a finite supply of funding available from retail savings, not least because the FSA continues to urge building societies and retail banks to hoard liquidity. Without a re-opening of the mortgage securitisation and covered bond markets, the overall availability of funds to mortgage lenders in aggregate is significantly lower than it used to be.

Michael Coogan, CML director general, commented:

"Neither the cost nor the availability of wholesale funds has improved for lenders since the Bank of England launched its special liquidity scheme, helpful though that scheme is. This means that cost and availability to customers has not improved either. And this in turn means that consumers are now beginning to give up and demand is falling, with confidence in the housing market falling with it.

"The problems currently being experienced by house builders amply illustrate the lasting damage this can inflict on the wider economy. But it is not too late to take steps to address the fundamental problem, which is the lack of funding available through wholesale mortgage funding channels. We urge James Crosby and the Chancellor to implement the necessary policies to achieve this objective."

NOTES TO EDITORS

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. There are 11.8 million mortgages in the UK, with loans worth over £1.2 trillion.

2. The Bank of England's credit conditions survey for the second quarter of 2008 is available here.

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