£300bn mortgage funding gap

Mortgage lenders have warned that they are facing a £300bn shortfall in the amount of funds they have available to lend out to mortgage borrowers in the future.

With the securitization (or ‘wholesale’) markets where lenders traditionally went for money now almost completely closed, lenders are having to rely on the money they get in from savers, along with the billions of pounds made available by a variety of Government bail-out schemes, to provide the funds they lend out as mortgages.

Once the Government schemes end in 2014, the Council of Mortgage Lenders (CML) calculates that there will be a £300bn funding gap, which could significantly reduce mortgage product choice for borrowers.

It could also impact first-time buyers, as loans would be restricted to those who could offer a large deposit.

"The UK [could be] at risk of a chronic under-supply of credit - and the rationing of mortgages for customers - for many years to come," the CML said.

The securitization markets closed after the credit crunch set in in 2007, forcing the Government to fill the void with programmes such as the special liquidity scheme and the credit guarantee scheme.

The CML is concerned that, despite a little recent activity on the wholesale markets, they will never return to the levels seen before the credit crunch, and the gap will not be filled by deposits from savers.

"Unless there is a policy approach intended to encourage the development of wholesale funding, we are likely to see a long-term decline in choice for UK mortgage customers," the CML said.

It added that a "clear strategy" was needed to put the UK mortgage markets back on a "sustainable footing" immediately after the general election.