Banks warn Brown of mortgage market logjam
By Peter Thal Larsen and Jim Pickard
Published: April 15 2008 22:04 | Last updated: April 15 2008 23:30
The credit crisis is so severe that dozens of smaller lenders could be forced to stop offering new mortgages unless the government intervenes, leading bankers told Gordon Brown on Tuesday.
The stark warning, issued at a Downing Street summit between the heads of big banks and the prime minister, came as Mr Brown indicated he was willing to intervene in the markets, provided the banks would respond by offering loans to first-time buyers and others struggling to find mortgage offers.
The Bank of England is close to finalising the terms for such an intervention, which would see it taking over mortgage loans that are stuck on banks’ balance sheets to break the logjam in the money markets.
People familiar with the plan, which still needs government approval, said the Bank would swap securities backed by UK mortgages for government bonds for a period of one to three years.
The Bank would not accept any mortgages agreed after the end of December last year. This would be consistent with the Bank’s aim of clearing the overhang of mortgages stuck on banks’ balance sheets without supporting new lending or exposing taxpayers to significant credit risk.
Bank executives told Mr Brown on Tuesday that he needed to move quickly to prevent smaller building societies being forced from the market, leaving only a handful of large banks to offer new loans. “The big banks said: `You’ve got to think about this’,” one person present at the meeting said. “We’re going to take 100 per cent of the market.”
Last year, building societies and other specialised lenders accounted for 47 per cent of mortgages, according to the Building Societies Association.
British authorities have been criticised for being slower than their
counterparts in the US and Europe to lend against banks’ mortgage collateral to help ease the effect of the credit crunch.
Tuesday’s meeting at Downing Street came amid predictions that the credit squeeze would hurt the City of London.
JPMorgan said there could be as many as 40,000 job losses in the City of London with some 28,000 job losses in the financial sector - an increase on previous estimates that about 20,000 financial jobs could be lost during the economic downturn.
The forecast emerged in a note from the property team at the investment bank, which used the figure to forecast a fall of 16 per cent in rents in the City.
The numbers suggest about 8 per cent of financial jobs will be lost in the next two years, with 5 per cent lost across all City occupiers.
Mr Brown on Tuesday night left for the US, where he is expected to meet Ben Bernanke, Federal Reserve chairman, and Wall Street bankers to discuss responses to the crisis.