AMI demands government action

The Association of Mortgage Intermediaries (AMI) has called for a "public policy response" to ease a turbulent housing market.

Following the publication of its quarterly report into the state of the industry, the AMI laid out its case for decisive action in meetings with the Treasury, Bank of England and Financial Services Authority (FSA).

The AMI also met with Sir James Crosby, who is presently carrying out a review into mortgage funding liquidity in the UK market, following the Northern Rock debacle.

"We have also spoken to all the political parties as we now believe that political pressure needs to be brought to bear if we are to stop a liquidity crunch becoming an economic crisis," said Chris Cummings, director general of AMI.

The AMI is concerned frozen money markets are showing little sign of thawing, while the three month Libor continues to creep up, and the Interbank Lending rate (LIBOR) is nearly 100 basis points above Bank rate.

The Bank of England's base rate is presently at five per cent, following two consecutive holds by the monetary policy committee (MPC).

The Bank has been acting as oil and food prices send inflation soaring to 3.8 per cent, the highest level since the Bank of England took control of monetary policy in 1997.

Upside risks to inflation also constrict the MPC's ability to cut rates to mitigate downside risks to growth.

The credit crunch has also prompted lenders to increase rates and tighten terms on which they lend, precipitating mortgage approval levels to fall to the lowest level on record.

Re-mortgaging, previously resilient to the crunch, has also begun to decline.

"The financial position of lending institutions remains one of the main sticking points to the recovery of the mortgage market," added Mr Cummings.

"Banks are under-capitalised following the large round of write-offs on wholesale instruments and are currently going through the protracted process of rebuilding their balance sheets.

"With capital market liquidity still very poor, funding costs high, and securitisations running at less than a tenth of the levels of recent years, institutions have not got access to cash to grow their businesses."

Chris O'Toole