Crosby mortgage report delayed after September crisis
Article source: www.business.timesonline.co.uk
The Government’s Crosby report into UK’s ailing mortgage market will be delayed by a fortnight as more time is required to discuss the events of September.
The report, created by a committee chaired by Sir James Crosby, the former Chief Executive of HBOS is likely to look at whether the UK Government should renew or extend the Bank of Englands Special Liquidity Scheme past January of next year.
The scheme allows UK Banks to swap mortgage backed and other securities for treasury bills. The facility to swap high liquid assets for treasury bills help to increase liquidity in an already dry banking system and gives investors added reassurance in the financial market.
This report could renew the ailing mortgage market but has been delayed for 2 weeks to enable it to take into account the recent activities in the month of September.
Many of the problems faced by the financial sectors have resulted from a reduction in inter-bank lending. The banks are simply sitting on their cash and are unwilling to lend it due to a lack of trust. Yesterday, the some inter-bank lending rates reached as high as 7%; an unprecedented figure and one which reflects the state of the market.
When banks are unwilling to lend to each other it creates a problem. If they can not borrow cash and lend it on to their customers in the form of mortgages, unsecured and secured loans and business loans they will not make any money in the form of interest from their assets. If they are not making any money, confidence begins to falter, financial forecast go down and share prices follow.
There are many factors which have come together, falling house prices, rising inflation, rising interest rates amongst others. Many of these problems have been the result of the lack of regulation in the financial market when it comes to areas like sub-prime mortgages (mortgages which are issued to clients who are seen to be high risk and have a poor credit rating), and short trading (the practise of borrowing shares at a high price and buying them when the markets fall) of shares. There has also been much controversy surrounding the bonus that some city fat cats, investments bankers and traders receive. These bonus schemes are often linked to profit and not long term growth. A practise which often leads to short selling of shares and creates added volatility in the market.
The interim Crosby Report which was release in July was critisised by the property industry for failing to highlight decisive actions which could be taken to revive the mortgage industry. The Crosby report is now due to arrive on the 13th of October and will be made public by the treasury before the next pre-budget report.
The Government is prepared to intervene to revive the mortgage market as it has already shown with the nationalisation of Nothern Rock and B&B and for raisig the stamp duty threshold to £175,000. However many experts have predicted that the existing mortgage slump will continue for the next three years.
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