Seizure until 2011 in the UK mortgage market

The former chief executive of HBOS, Sir James Crosby, said that the shortage of mortgage finance will continue throughout 2008, 2009 and 2010 continuing into 2011, and the risk of repossessions will grow, the review of the mortgage market was carried out by Sir James and presented to the Treasury today.

The idea of setting up a US-style government-backed mortgage agency like America’s Fannie Mae to kick-start the UK market was ruled out by Sir James. Although it seems there is a possibility that British banks could be allowed to swap new mortgages for government debt.

There is already a scheme that the Bank of England introduced in April, which allows banks to exchange mortgage-backed securities, to sell in the market for government debt. At the moment the banks can only swap mortgages they had on their balance sheets at the end of 2007.

In the report Sir James highlighted that he is looking with urgency at the full range of options identified by market participants for stimulating the supply. There are some options that Sir James could use to reignite the UK mortgage market although it seems that sometimes doing nothing could be the best thing.

New home purchases took a dive to 70 percent in June this is a record love according to figures from the bank of England.

Unless you are a cash rich buyer then you are pretty much excluded from the property market, banks and building societies rely on mortgage-backed securities which investors are steering clear of in the sub-prime crisis. This limits the loans on offer, so lenders are cutting their risks by demanding huge deposits.

This all has a knock on effect to the housing market, buyers are more desperate to sell and drop their asking price to tempt buyers, house prices have dropped more that 10 per cent since August last year.
We will get Sir James final recommendations in October, in time for the pre-budget report.

Source: timesonline.co.uk