Crosby gives little solace to house buyers

A Treasury-backed review of the mortgage financing market offers little hope of a rapid recovery...

Last Updated: 31 Aug 2010

Sir James Crosby, the banker hired by the Treasury to look at problems in the UK mortgage market, has published his interim findings – and it makes pretty gloomy reading. The former HBOS chief (though don’t hold that against him) reckons things are unlikely to improve for at least three years, with mortgages getting more expensive and defaults rising during the intervening period. ‘In my opinion, such a shortage of mortgage finance will persist throughout 2008, 2009 and 2010, and I suspect that current forecasts for net new mortgage lending during this period will prove optimistic,’ said Crosby.

Crosby points out in his letter to Chancellor Alistair Darling that the UK market had become heavily reliant on mortgage-backed securities as a source of funding. This grew so rapidly, he says (thanks to an ‘explosive growth in demand’, largely from outside the UK), that it accounted for two-thirds of all new lending by 2006 and almost a quarter of all outstanding loans by 2007. So when the credit crunch hit and this market dried up, it’s no surprise that lenders started pulling in their horns.

On the day the Bank of England said that new mortgage approvals in June fell to their lowest level since records began in 1993, there’s never been a more urgent need for a plan to breathe life into the moribund mortgage market. Crosby had already said that he wouldn’t publish his full recommendations until later this year, ahead of October’s pre-budget report – but even so, today’s report was disappointingly short of potential cure-alls…

It seems that he thinks the Government’s most viable option is effectively to guarantee new issues of mortgage-backed securities, in a bid to get the market moving again – though this has already prompted criticism that it would mean the taxpayer bearing all the risk and the private sector taking all the rewards. But he ruled out the idea of a US-style system along the lines of Freddie Mac and Fannie Mae, the government-backed mortgage corporations that underpin the US market – and given their recent funding crisis, that’s hardly a surprise. ‘I think it unlikely that it would be right to tackle this century’s problems with last century’s solution,’ sniffed Sir James dismissively.

In fact, he seemed to suggest that the Treasury’s best bet might be to steer clear of the issue altogether: ‘I may yet recommend that the Government should not intervene in the market, on the grounds that such intervention would create more problems than it would solve’. We suspect there’ll be plenty of people in the City inclined to agree...

In today's bulletin:
BA makes Spanish eyes at Iberia
Crosby gives little solace to house buyers 
BP under pressure as profits rocket 
Is Cuil the next Google? 
Are your telephones safe?

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