A new plan to shift hard-to-sell financial instruments from banks' balance sheets has been unveiled by mortgage lenders.
Mortgage lenders have made a new proposal to boost housing market funding.
The idea, submitted to the government yesterday by the Council of Mortgage Lenders (CML), focuses on residential mortgage-backed securities (RMBS) - a type of complex financial products traded between banks and other lenders which became significantly devalued by the onset of the credit crunch.
Under the terms of the plan, these RMBS would be more easily sold to investors through the open market - moving them off banks' balance sheets and therefore allowing them to offer cheaper home loans to the general public. The CML is asking the Bank of England to back these trades through a "repo facility", providing the investor with the assurance that the RMBS will not prove unsellable and therefore boosting their value.
The RMBS scheme would supplement the Bank's £50 billion Special Liquidity Scheme, which offers banks the opportunity to trade in some of their other poorly-performing assets for easy-to-sell government bonds, but specifically excludes RMBS.
CML director general, Michael Coogan, said: "If they act quickly, there is a window of opportunity here for the government and the Bank of England to break the logjam in the housing and mortgage markets and underpin confidence in the financial system. The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending.
"This proposal has the virtue of being delivered through the market itself. Unlike a government guarantee, the investor keeps the credit risk. But it specifically incentivises investors, which the special liquidity scheme does not."
