THE UK Government is being urged to increase liquidity in financial markets by allowing banks to bundle up new mortgages on their books and swap them for Treasury bills to help fund more home loans and boost the housing market.
The Government introduced its Special Liquidity Scheme in April to allow banks and building societies to exchange mortgages issued before 2007 for Treasury-backed short-term bonds.
The scheme was designed to temporarily fill the gap left by th
e collapse of securitisations being transacted between banks during the credit crunch. This had left lenders unable to fund more mortgages for potential homeowners.
Imtiaz Farookhi, chief executive of the National House-Building Council (NHBC), said the Special Liquidity Scheme should be extended to home loans now being taken out to give a lift to the stagnant housing market.
Farookhi said he wants Sir James Crosby's report, due out this month, on how to improve the UK mortgage market to include this measure.
Farookhi said: "The key thing is more liquidity in the market. At the moment, lenders are bundling their existing mortgages into securities and selling them through the facility provided by the Bank of England to raise cash. Several organisations, including ourselves, want that extended to new mortgages being taken out."
Farookhi said because many potential buyers are unable to obtain a mortgage house builders are going bankrupt or mothballing developments, which will exacerbate the shortage of new homes in the long term.
Farookhi was speaking in advance of the 11th International Housing and Home Warranty Conference in Edinburgh this week, hosted by the NHBC. The conference will tackle such issues as the effect of the credit crunch on builders and potential homeowners.
Farookhi added that the shrinkage in the housing market is evident from the 50% decline in new-build registrations received by the NHBC since this time last year. He is concerned the situation will get worse if liquidity is not boosted or interest rates are not cut.
He said: "It's about lenders getting back to normal and I hope the Crosby report will take account of this in the shorter term. When liquidity in the market improves, fundamental housing demand will still be there."
The Edinburgh conference will focus on the risks to consumers caused by the credit crunch. For example, with more housebuilders going bust, not just in the UK but around the world, there is a greater risk of clients losing their deposits, Farookhi warned.
He added: "Another danger is that some building contractors are competing for work by charging very low rates, so the quality of construction may suffer."
Delegates from around 17 countries will attend the conference, which is being held in Scotland for the first time.
Farookhi said one of the reasons Edinburgh was chosen as the venue is because of the number of housing regeneration projects. These include Forth Ports' plans and the Quartermile development in the city.
The conference will also examine mortgage lending in developing countries such as India and Africa, which are seeing a substantial growth in home ownership for the first time.
Different approaches to tackling climate change and how countries will achieve their zero carbon emission targets for homes will be discussed.
