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Government financial announcements welcomed

Monday, 19 January 2009 12:37 PM

The Council of Mortgage Lenders (CML) and Royal Institute of Chartered Surveyors (Rics) have welcomed the government announcements to support lending in the economy.

The CML says the conditions and level of fees imposed on lenders who wish to use the new measures will be particularly important in determining their effectiveness.

The organisation - which represents the interests of the mortgage industry - also welcomes the announcement of changes to the Northern Rock strategy relating to the repayment of its obligations to government, which will have the effect of reducing the negative impact caused on the mortgage market by the shrinkage of Northern Rock's mortgage book. This should mean more of the funding that is available may go towards home purchases rather than remortgaging, which would help to support wider activity in the market.

The Council has been asking for more than a year for measures to support investor confidence in mortgage-backed securities, so the guarantee scheme for asset-backed securities announced today is particularly welcome. It should help to restart the securitisation market, although at a detailed level the scheme may still be too tightly drawn, appearing to be restricted to AAA-rated securities, and excluding non-deposit-taker lenders.

The extension to the discount window facility is helpful too, and should help to offset the potential problems that would otherwise have emerged from the ending of the Special Liquidity Scheme (SLS).

Michael Coogan, CML director general, said: "At long last, the government has announced a comprehensive and co-ordinated package of measures sufficiently large in scale to have an impact on improving the flow of new lending.

"As always, the devil will be in the detail and there will be a great deal to work through. No doubt, there may still be disproportionate impacts on some firms or some sectors from the latest measures, but overall this is a helpful package that we think is much more likely to help lending flow more effectively again than the steps that have been taken to date.

"It is too soon to assess what impact these interventions may have on lending levels in 2009, but they should be helpful."

Rics has also embraced today's announcement by HM Treasury to provide a further range of measures to support the beleaguered banking sector. Rics chief economist, Simon Rubinsohn, said: "The decision to implement a guarantee scheme for asset backed securities along the lines recommended by Sir James Crosby should provide much needed support for the housing market which is continuing to struggle in the face of the dramatic decline in the availability of mortgage finance. Providing guarantees should help to revive investor interest in asset backed securities.

"If this strategy is successful, it will offer lenders the opportunity to use wholesale funds to help supplement saver's deposits as a source of finance for new mortgage loans. This is an important first step in putting in place the conditions for a return to an orderly housing market.

"Rics also sees the introduction of an Asset Protection Scheme (APS) as a key step in enabling lenders to increase the provision of finance more generally across the economy. The collapse in lending for house purchases has led to the emergence of a huge gap between the demand for and the supply of mortgage funds.

"This was demonstrated most visibly in the recent Rics Housing Market Survey which shows 'new buyer enquiries' currently growing at their fastest level since August 2006. By way of contrast, the total number of mortgages actually being approved is now at a historic low."

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