Net new mortgage lending likely to decline to zero in 2009

Posted under General by Michael

According to the Crosby Report submitted to the Government, net new mortgage lending will decline to zero in 2009. Total lending in 2007 was £108bn and is expected to touch not more than £40bn during 2008.

Sir James Crosby, who was requested by the Government to prepare a report, informs that majority lenders have plans to reduce lending during 2009 and 2010. They are apprehensive of getting severely affected by redemptions of mortgaged-backed securities, totalling £160bn during this period. This situation led Sir James Crosby to conclude that net new mortgage lending would go down to zero next year. According to him modest recovery in lending was expected in 2010.

Sir Crosby, former chief executive of HBOS, recommends that banking industry should be encouraged by the Government for standardising mortgage-backed securities.

He considers that the International Accounting Standards Board’s fair-value accounting strategy has compelled banks to reduce their assets value causing seize up of inter-bank lending. Sir Crosby suggests Government to persuade the Board to reconsider its strategy.

Report also recommends Government’s intervention in mortgage finance markets by offering £100bn guarantee of mortgage-backed securities in 2009 and 2010.

Chancellor Alistair Darling who has supported the proposal would take up the issue with the EU since state aids require its approval.