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Specialist lenders left out in the cold by BoE

Industries trade bodies are concerned that specialist lenders have been left out of the Bank of England’s £50bn liquidity lifeline.

While both the Council of Mortgage Lenders and the Intermediary Mortgage Lenders Association are expressing support for the program that allows lenders to swap high quality residential mortgage-backed securities and credit card debt for Treasury bills, they are concerned that many lenders will be unable to take advantage.

The CML and IMLA both note that specialist lenders have zero access to the scheme and that the government has yet to clarify if funds can be used toward meeting consumer demand for products and pricing.

Michael Coogan, director general of CML, says: “This is a welcome move by the BoE, previously requested by the CML, to address the liquidity shortage which is undermining the markets and keeping LIBOR stubbornly high.

“What the scheme does not do is give all mortgage lenders direct access to the new funds. In particular, it does not include smaller societies and specialist lenders.

Coogan says that the CML is awaiting further details on how much of the additional liquidity might be adapted into mortgage product pricing, so that lenders can bridge the gap between how much consumers want to borrow and how much funding is available this year.

Peter Williams, executive director of IMLA, says: “We would have liked action to have been taken more quickly however this move is welcome and should start to ease the logjam in mortgage funding.

“It is important that specialist lenders, along with banks and building societies, with AAA rated mortgage backed securities, will be able to swap them against government securities.

“That does mean that the facility will be relatively restrictive and that lenders with non-prime packaged assets will not be able to tap this source of funding.

“It also can’t be used to support new business, although the general easing of liquidity in the market should have a knock-on effect on the availability of new funds to hard-pressed mortgage customers.

“Despite its limitations, we must regard this as a positive step in terms of kick-starting the mortgage industry, and it should reduce negative pressures in the housing market and in the wider economy.”

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