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July 11, 2008

Lenders argue for extension of Special Liquidity Scheme

by Gill Montia

Story link: Lenders argue for extension of Special Liquidity Scheme

The SLS has provided regular injections of cash and an agreement whereby banks are able to use a range of assets as security, including securitised bonds backed by mortgages, and credit card debt.

However, Libor (the rate at which banks lend to each other) and money market swap rates, which determine the level of interest on fixed-rate loans, have not fallen as a result of the intervention.

According to the Bank of England, mortgage rates are at an eight-year high and the Council of Mortgage Lenders says that the benefits of the scheme have yet to be felt by lenders.

It is understood that High Street banks are keen to see the scheme extended to include mortgages written this year among the assets against which they can borrow.

This could help free up the mortgage market and the slowdown in the housing market.

The latter is now having a market impact on the wider economy, with the UK’s largest housebuilders reporting plummeting sales of new homes and job cut expected to total around 8,000 in the sector by the end of the year.

However, in previous exchanges with the UK’s leading lenders, the Bank of England’s governor, Mervyn King, has made it clear that he has no intention of bailing out financial institutions that have been reckless in their lending.

 

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