Bank bail out to kick-start lending
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Gordon Brown today announced plans to provide government guarantees for mortgage-backed debt, as part of a second bid to bail out the banks and boost lending.
The move was welcomed by lenders and home builders, who see it as a vital step to injecting new loans into the ailing housing market.
Before the credit crunch, a third of mortgages were supported by mortgage-backed securities, according to the Treasury.
These enabled banks and building societies to bundle the loan debts and sell them on to investors.
The guarantee scheme, recommended in last year’s Crosby review of mortgage finance, is due to begin in April 2009.
In other measures unveiled today, the Bank of England will purchase up to £50 billion of ‘illiquid’ assets on bank and building society balance sheets.
The Treasury will also offer some major lenders guarantees against future losses on those asset portfolios which are ‘most affected’ by the economic crisis.
At a Number 10 press conference, the prime minister insisted the new plan was not to help the banks themselves.
‘These are comprehensive measures focused on one purpose - increasing the amount of lending that is available to families and to the businesses who are the backbone of our country and who want to invest and create jobs,’ he said.
Council of Mortgage Lenders director general Michael Coogan 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.’
But the pressure group voiced concern that the mortgage guarantee scheme – which is restricted to the highest quality, triple-A rated securities – might be ‘too tightly drawn’.
John Stewart, director of economic affairs at the Home Builders Federation said: ‘The government must now work with lenders to ensure banks use the facility to assist beleaguered home buyers.’
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Readers' comments (3)
Sharon Crossland | 20/01/2009 12:01 pm
Gordon Brown may have insisted that his new measures are not just to help the banks (again) but it certainly doesn't look like it to many people. From my own perspective, the first injection of cash didn't stimulate lending again for two main reasons - the first injection was to needed to build up lending capital in preparation to lend again and the second injection would be to remove the reason that the banks don't trust each other - the unknown quantity of so-called toxic debt still within the banking system.
In November 2008, the former Chief Executive of HBOS and the current Deputy Chairman of the FSA announced his report on the state of the mortgage market and how it could be unfrozen. His key proposal was that the government should encourage the standardisation of Mortgage Backed Securities and guarantee their issue. He proposed a figure of £100bn for 2009 and 2010. This is now scheduled to go ahead in April this year with, I assume state aid approval from the European Commission, which was required to allow it to go ahead.
So, will it work this time?
Well, the banks have got their lending capital shored up, they also look to be getting their toxic debt removed from their books by the government who will also underwrite any new Mortgage Backed Securities that the banks issue so surely this is enough?
I notice however that the Council for Mortgage Lenders has voiced concerns that the mortgage guarantee scheme may be 'too tightly drawn' because it is restricted to the highest quality triple-A-rated securities. Surely the loosening of the grading of such securities was another reason that contributed to us ending up here?
Regards
Miss Sharon Crossland
Leasehold Life
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sandra carter | 20/01/2009 3:11 pm
why first home owners?
move on..... there is lots thatwould like to have another chance to purchase a home to live in that have had problems in their past financial life and would like a chance for a deposit like $21,00 1st home owners to get it started again.
Why not a deposit lending for people, need to live in home for 6 - 7 yrs min and if and when sold, or used a an investment property, yo need to pay back the deposit that was loaned to you plus a small interest figure on top as a continually growth for people to own their own home.
Need to help all people own their own home, and these homes need to be at a realistic costing / purchase.
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Annelie | 20/01/2009 4:27 pm
Why are the interst rates still so high? Why are the banks not forced to pass on the incentives to the customers? If the interest rates comes down that will boost lending since people will be able to 'afford' to borrow. The bank base rate is 1,5%, why is the loans availble not reflecting this?
Government need to put preassure on the banks and mortgage lenders
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