Steve Crawshaw, chairman of the Council of Mortgage Lenders (CML) has said that without extra funding from the Bank of England, mortgage lending could fall by half in 2008.
Speaking at the annual lunch of the CML, Crawshaw said there was a real possibility that 2008 mortgage lending could be just half of the £108 billion loaned in2007 for mortgages.
In recent weeks building societies have been cutting back their mortgage offers, with Abbey the last to withdraw a 100% mortgage offer this week.
Late last year the CML said there could be a 15 per cent drop in net mortgage lending, but the worsening credit crunch could see that percentage rise.
Crawshaw said that mortgage lenders now faced greater difficulty on raising the money needed to lend for mortgages.
I have a sense of shock at how deeply our successful industry has already been hit by these unprecedented funding market conditions.
Potential borrowing still significantly exceeds the industry's collective capacity to supply funds. It is therefore a real possibility, looking forward from today, that net lending in 2008 could reach only half last year's level unless additional funds become available. But it doesn't have to be that way.
Crawshaw said that the Bank of England could step in. He said it could introduce, deeper and longer term repo facilities – extending beyond the 3-month facility to 12 months or perhaps even 24 months.
He also suggested that the Bank could [kick start] the market for new issuance of mortgage-backed securities – perhaps by incentivising the kind of stable, domestic investors such as pension funds that would fit this market well.
On Monday the CML released figures showing a drop of 33 per cent in the number of mortgages loaned for buying houses in February compared to the same month in 2007.