The Government has released details of its latest scheme to get the housing market moving, which include plans to guarantee mortgage lending.
The scheme is recommended by ex-bank boss Sir James Crosby, who was commissioned last year to review the struggling mortgage market. The Treasury hopes that by underwriting a key part of the mortgage market up to a total of ?100 billion, they will help to rescue the banking sector.
The package will guarantee billions in ?toxic assets? already held by banks, which may now only be worth a fraction of their original value.
It is hoped that this will kick-start fresh lending in the mortgage market where a shortage of affordable loans is contributing to a crash in house prices.
The UK’s mortgage boom was driven by a process called securitisation. This meant that banks packaged up mortgages they had issued and sold them on to new investors to spread the risk from homeowners defaulting.
When investors became wary in 2007 of a potential housing crisis they were unwilling to take on mortgage risks and the market for securitisations collapsed, taking the availability of mortgages with it.
By acting as guarantor the Government would step in if both the homeowner failed to pay their mortgage and the bank that issued it was also unable to pay.
Crosby argued such a scheme meant only low levels of risk to the taxpayer, but would boost the mortgage market as it would give investors confidence to buy up packages of home loans.
