The working group will draw on the experience and expertise of lenders, investors and the Tripartite Authorities of the Treasury, the Bank of England and the Financial Services Authority.

The establishment of the working group follows the publication of the Treasury’s Housing Finance Review alongside Budget 2008. The working group will consider options for improving the mortgage-backed securities market, including measures aimed at broadening the investor base for mortgage-backed securities and improving the robustness of the market.

Its first task will be a broad-based assessment of the current state of the mortgage finance market.

Chancellor Alistair Darling said: “The recent and ongoing disruption in global financial markets has raised complex issues about the functioning of the mortgage-backed securities markets. I am delighted to announce that Crosby will chair the industry working group that will consider market-led initiatives to improve these markets. This work will be an important contribution to stabilising the cost and supply of UK mortgages.”

The group will present an interim report to the Chancellor later this summer and a final report at the time of the next pre-Budget report.

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Michael Coogan, director general of the Council of Mortgage Lenders, said: “The working group has been given a broad remit to consider what is needed to restore confidence in mortgage funding markets. Of particular importance is the acknowledgement that the market needs more effective disclosure of the quality of underlying mortgage assets, which in the UK remains good.

“The reality is, however, that confidence in the market for mortgage-backed securities in particular cannot be restored over night. Meanwhile, the shortage of funding is creating disruption in mortgage and housing markets now. While the working group is developing its proposals, we therefore believe there is a need for more immediate action by the central banks, in particular the Bank of England in the UK, to address market funding problems.”