Shortfall in funding could force Bank to extend liquidity scheme
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A £800bn funding gap could mean the Bank of England has to extend its Special Liquidity Scheme, according to the Association of Mortgage Intermediaries.
In its Quarterly Economic Bulletin published last week AMI warns that the UK is vulnerable to a second wave of liquidity problems because of a £800bn funding shortfall.
The Bank recently warned that lenders will need to raise up to £800bn to refinance their borrowings in the next 18 months.
Of this total, £200bn is owed to the Bank itself through the SLS.
AMI says something will have to give and it’s inevitable that the Bank will have to provide further support, so a more prolonged wind-down of the SLS is likely.
AMI says: “The SLS has been successful in increasing liquidity in the system and crucially in raising confidence among banks that their trading partners have the funds to meet their commitments.”
But it adds that whether the SLS has increased the amount of funds available for mortgage lending is more debatable, given that banks have been focussing on rebuilding their capital bases and avoiding lending more to already debt-laden consumers.
It says: “There’s little doubt that the scheme’s withdrawal in April next year will significantly curtail the funds available for the mortgage market.”
The Council of Mortgage Lenders is expected to lower its forecast for gross mortgage lending in 2010.
AMI has also warned that gross mortgage lending for 2010 may not be as high as its previous estimate of £150bn.
The CML is understood to have broached the subject of a downward revision in its forecast at a meeting last week, and could alter the figure by August 1.
A spokeswoman for the CML says: “It is likely that we will revise our forecast but nothing has been decided yet.”
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