CML: Special liquidity scheme will not boost mortgage market

The Council of Mortgage Lenders (CML) has acknowledged the Bank of England's recently announced special liquidity scheme may not assist the housing market.

Addressing the Debt and Personal Finance All Party Parliamentary Group meeting this morning the group's director general Michael Coogan said the scheme's roll in the housing market will be "uncertain in terms of scale and timing".

Instead the £50 billion special liquidity scheme is designed to "improve liquidity in the banking system".

The comments echo those of Bank of England government, Mervyn King, who yesterday told the Commons Treasury Select Committee the scheme was designed to bolster faith in the money markets and banking system.

In what could be viewed as a snub to chancellor Alistair Darling's plans to revive the mortgage market, Mr King said: "It is not designed to kickstart the mortgage market.

"This is designed to restore confidence in the banking system, not to regenerate any aspect of the mortgage market, or achieve anything else."

The CML, however, did sound a cautionary note of optimism over the future direction of the market.

"In the short term, and contrary to popular belief, customers coming out of fixed rates in 2007 and 2008 appear to be managing the adjustment well so far," said Mr Coogan.

"For some borrowers coming off fixed rates, higher payments will be affordable because their salaries have continued to go up.

"For others, the option of extending their mortgage term, switching from a repayment to an interest-only loan, or a short-term payment holiday may be an option if they have good payment histories."

Further to this lenders are obliged to follow the Financial Services Authority's Mortgage Conduct of Business, and thus customers must receive 'fair' treatment.

The CML presently expected 0.38 per cent of mortgages - 45,000 - to slip into repossession in 2008.

Chris O'Toole