THE UK mortgage market may not return to normal for another two or three years, a report commissioned by the British government has warned, writes Simon Carswelland Marie O'Halloran.
The report, written by Sir James Crosby, former head of HBOS, Britain's largest mortgage lender, said there was no quick fix to ease the log-jam in mortgage funding and declined to provide any firm solutions to the problem.
He said the mortgage finance shortage would persist until 2010.
Sir James said the British government could encourage banks to resume lending if it guaranteed mortgage-backed securities, but stopped short of recommending action to improve the housing market. He said a temporary government guarantee or Bank of England agreement to accept more mortgage securities as collateral to stimulate the property market may "create moral hazard".
"It is also debatable whether this sort of approach would help or prolong the transition to better functioning markets," he said.
He rejected a US-style mortgage agency, similar to Fannie Mae or Freddie Mac, as a way of unfreezing UK mortgage lending.
A quarter of Bank of Ireland's €136 billion loan book, or mortgages worth €34 billion, was in the UK at the end of March; 21 per cent of Irish Life Permanent's €39 billion book, or €8.3 billion in loans, was in the market last year.
Davy Stockbrokers said in a report on the two banks' UK exposure that they could contain losses on buy-to-let and self-certified mortgages to two-thirds of the overall market level "based on sound underwriting and consistently better-than-average historic arrears records".
Meanwhile, Department of Finance officials say borrowers have "little to fear" in proposals to integrate European mortgage and credit markets. "We wish to ensure that it provides Irish consumers with the same . . . protection they already have," a senior official told the Oireachtas European Affairs committee.
Principal officer Bob Bradshaw said there were "strengths in our system that we think are important to maintain, in particular the arrangements in relation to the early repaying of loans, where the Irish consumer is protected by the Consumer Credit Act 1995".
