Mon 21st Apr, 2008
New Hope for Mortgage Seekers
The Bank of England has announced today that it will be offering £50bn in government bonds to banks and home loan lenders. This is aimed at softening the credit crunch throughout the UK.
Currently banks and lenders are reluctant to take on mortgage debt, but this BoE scheme will allow them to use government bonds, enabling them to operate normally during the credit crisis and rumoured world recession.
BoE Governor, Mervyn King, is confident that this move will raise liquidity on the money market and improve financial confidence.
The scheme allows lenders to swap current mortgage debts for the bonds, and whilst it is only applicable for existing loan business on lender books, it will still free up funds for first time buyers who are currently unable to secure a mortgage.
The scheme has the full approval of Gordon Brown, who said: “We can get markets working again in a way that we can ensure that jobs can be continued, and of course businesses can have the finance they need.”
Since the American sub-prime mortgage crash, worldwide investors have been reluctant to allow their funds to be invested in the UK home loan market. This has left a shortage of funds available for mortgages, with even banks being reluctant to lend to each other.
The Council of Mortgage Lenders warned, however, that this move would not necessarily see cheap loans reappearing on the market.