Funding gap could restrict lending for five years

Mortgage lending could remain subdued for up to five years as lenders grapple with a £300bn funding gap, a Council of Mortgage Lenders adviser has warned.

Speaking at the CML’s annual conference on funding affordable housing in London last week, Rob Thomas, senior policy adviser at the CML, highlighted the severity of the sums lenders have to pay back to the government and the Bank of England for access to funding over the next two years.

Thomas says that £178bn worth of funding accessed through the Special Liquidity Scheme falls due in 2011/12 while the £134bn from the Credit Guarantee Scheme is due in 2012/13.

He says: “How realistic is it to believe that retail deposits can be the source of funding to pay back the government? The answer is that retail deposits grew by about £60bn last year, which suggests it will take around five years to repay the government, and lenders don’t have five years.”

As lenders have to pay back this sum over the next three years they will have less money to lend.

Thomas adds: “This means len-ders are going to be restrained for possibly the next five years. The next few years are going to be hard.”