Leader: Fundamentals need fixing

Talk of a double dip recession hit the headlines last week, with Bank of England governor Mervyn King warning that the UK faces a choppy recovery. Meanwhile, the Council of Mortgage Lenders has revised its forecast for gross mortgage lending in 2010 downwards by £10bn.

At the beginning of the year many commentators were predicting that 2011 would be the year when the market started to bounce back, but in many ways the mortgage sector is in a worse state now than it was 12 months ago.

And the proposals in the Financial Services Authority’s Mortgage Market Review are likely to restrict the market even further without providing a solution to the funding drought. Sure, the MMR may fix some problems in the market but it won’t address the lack of funds – in fact, it could even make it worse.

And there’s precious little indication that the government or the regulator have a solution to fill the funding gap either. Many lenders have lost the will to lend at high LTVs – and in some cases even at low LTVs.

Let’s hope the government and Bank don’t desert the industry following the implementation of the MMR. The review is already seen by many as a cosmetic measure by the FSA and the Treasury to silence their critics by making it seem like they are doing something.

Meanwhile, brokers and lenders that have been holding out for the market to recover are starting to run out of steam, as was evident last week with the disheartening news about Savills Lending Solutions and Beacon Homeloans. Until the authorities address the fundamental issues holding the market back such as securitisation and funding we will remain in limbo.