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Tackle funding gap or risk instability

JOHN MURRAY, CONSULTING EDITOR, LENDING STRATEGY
JOHN MURRAY, CONSULTING EDITOR, LENDING STRATEGY

The mortgage market faces a decade of instability unless the government addresses the funding gap. That was the stark warning by mortgage lenders at a recent mortgage funding conference at the British Library in London.

Tony Ward, vice-chairman of the Intermediary Mortgage Lenders Association and chief executive officer of Home Funding, said that the Financial Services Authority’s recent risk outlook had acknowledged the problem and that the conference was a response to it.

The FSA states: “New debt issuance between 2010 and 2012 would need to be at a similar level to that achieved between 2004 and 2006 to replace the £440bn of maturing debt issues plus Special Liquidity Scheme support which are due between now and end 2012. If public issue securitisation can be restarted, this could contribute to closing the gap.”

But speakers at the event were concerned by the scale of the problem, given that replacing maturing government debt in the next five years was a global issue and the competition for investor funds would make it difficult.

The consensus was that a business model based on retail funding was as vulnerable to market change as a model based exclusively on wholesale funding.

Also, given the volumes of maturing debt, as well as the need to continue new lending, there was a case for the Bank of England to extend the SLS and work with the industry to make securitisation attractive for investors again.

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