The Bank of England governor Mervin King has criticised the idea of a possible public mortgage bank as a solution to the current lending difficulties.
You will no doubt be aware if you’ve applied for a mortgage within the last few months that The Bar has gotten rather higher for qualifying and that you’ll probably be needing a larger deposit. All this has led to far fewer new mortgages being taken up. According to Bank of England figures there were 33,000 approvals in July 2008 compared with 114,000 in July 2007.
This lending difficulty has caused the property market to stagnate and house prices are falling, it’s a vicious circle and bound to happen if borrowers are unable to raise finance sufficient to make a purchase.
Mr King does not however think a publicly owned mortgage bank is a good idea. He told the Treasury Select Committee If the Government were to guarantee mortgages...or set up a public sector mortgage bank to provide mortgages directly...what that would do is totally undercut the incentives private sector banks had to get their own balance sheets in order.
Mr King is of course the authority on this subject, however with the UK governments acquisition of The Northern Rock don’t we already have a public mortgage bank? Northern Rock continues to trade under the same name but would no longer exist had the government not taken it over last year. We’ve said previously on MoneyTalks that in our opinion Mr Brown and Darling had not much choice but to act or risk a bigger meltdown of confidence in the UK banking system.
Now that the Country now owns the Northern Rock it’s public money that’s taken on the mortgages of it’s customers. It seems to us that so long as the lending was made responsibly and fairly that this could help kick-start the mortgage market again.
Mr King thinks that the Banks wouldn’t appreciate the competition saying Banks point out that their balance sheets will take some time to adjust. That won’t happen unless they have incentives to do that. That’s fine but wouldn’t the competition give them an incentive? www.loans2you.net
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