Bank bosses meet PM over mortgage guarantees

Monday, 12 January 2009 10:11

Heads of the UK banks met with Gordon Brown this weekend to discuss plans to restart lending.

The meeting at the prime minister's Buckinghamshire country residence Chequers is thought to have looked at bringing government guarantees for new mortgage lending into force.

The proposals were first put forward in a report commissioned by the government by Sir James Crosby, the former chief executive of HBOS.

A response from the government to the Crosby report was expected last year - but the Treasury has turned to see if measures cross the EU state aid rules.

Under the plans the government would guarantee the new issuance of residential mortgage backed securities.

It is the collapse of the market for these securities that has reduced the funds available for lenders.

In 2007 around £650 billion in lending was funded through the securisation markets.

The Royal Institution of Chartered Surveyors (Rics) is demanding the government puts into place guarantees on all new mortgage-backed securities so lenders can start offering deals more widely.

The body claims without these guarantees the market is frozen with first-time buyers unable to start the ball rolling.

Simon Rubinsohn, Rics chief economist, said: "With many first time-time buyers unable to find the finance to take an initial step onto the housing ladder and existing owner-occupiers needing to move similarly blighted, the time has come for the government to take direct action to restore an orderly property market.

"As a first step in this process, Rics believes that the recommendation of Sir James Crosby to provide guarantees for the new issuance of residential mortgage backed securities (RMBS) should be adopted as soon as possible."

He explained by removing the risk associated with wholesale lending through securitisation vehicles, government guarantees would inject some much needed confidence back into the RMBS market.

"This approach is not a panacea for all the ills of the housing market but it will, at the very least, help in some way part to plug the funding gap that was triggered by the complete collapse in the securitisation market in the latter part of 2007," Mr Rubinsohn said.

However, the banks themselves are uneasy about a return to lending levels seen in 2007, as the flagging economy decreases consumers' demand for debt and increases the risks for banks from people defaulting on loans.

Daniel Barnes

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