Lending could be constrained for next 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 funding affordable housing conference in London today Rob Thomas, senior policy adviser at the CML, highlighted the severity of the sums to be paid back by lenders to the government and the Bank of England in exchange for access to funding over the last two years.

Thomas explains that £178bn worth of funding accessed through the Special Liquidity Scheme falls due 2011/2012, and a further £134bn from the Credit Guarantee Scheme which becomes due in 2012/2013.

He says: “How realistic is it to believe that retail deposits can be the source of funding to pay back the £300bn the government wants back?

“The answer is that retail deposits grew by about £60bn last year which suggests the simple arithmetic that retail deposits would take something like five years to repay those government funds and of course lenders don’t have five years.”

Thomas went on to say that the wholesale markets also offer little opportunity to repay the debts as even the boom securitisations accounted for £35bn of additional funding.

This would mean that it would take about nine years to harness the wholesale markets by enough to pay down their debt.

As lenders will be forced to pay back this sum over the next three years it inevitably means there is less money to lend.

Thomas adds: “All of this is going to mean that lenders are going to be restrained for possibly the next five years. The next few years are going to be quite difficult.”