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CML urges Bank of England to cut interest rates

05 December 2007
The Council of Mortgage Lenders has urged the Bank of England to cut interest rates or risk a severe shortage of mortgages in 2008.

It has been estimated that around £90 billion is needed in order to finance the demand for mortgage loans next year, a third of which, according to the Council of Mortgage Lenders, will need to come from the beleaguered money markets that have been suffering the effects of the global credit squeeze since August.

Speaking at the seventh annual Council of Mortgage Lenders conference, CML Director General Michael Coogan said: "Now is the time for the Bank of England to intervene more aggressively to bolster liquidity privately to help firms manage these unique, historic market conditions. It is a point recognised by many other central banks."

Mr Coogan warned that the outlook remained gloomy for the UK's financial markets and called on both lenders and consumers to prepare for challenging times ahead: "It's now clear the repercussions of the global credit crisis and the fall out from the Northern Rock events are going to have a profound and lasting impact on our market.

"Lessons clearly have to be learnt by all parties; including those of us managing businesses in the mortgage market, the regulators, the Treasury, and the Bank of England," he said.

Lenders were also advised of the need to price new loans to reflect the new costs of funds, as well as ensuring that they demonstrate their commitment to keeping their customers in their homes, through early discussions with those coming out of fixed-rate products, and sensitive handling of those who find themselves facing repossession.

Yet, while consumer confidence in the UK's finance markets hits and all time low, the Bank of England mortgage approvals data has revealed that the slowdown has been less dramatic than preliminary surveys had suggested, indicating that the situation is not as bleak as first thought.

While house purchases have slumped by 31 per cent over the past year and the number of approvals for house purchase dropped in October to 92,000 from 96,000 in September - 29 per cent and 31 per cent respectively below the numbers in October last year, which was one of the strongest months in the past four years.

Commenting on the data, Mr Coogan said: "The total value of mortgage approvals was higher in October than a year ago, with the value of net lending at levels similar to the monthly levels experienced in 2005. The number of approvals for house purchase fell as expected, but not by as much as earlier evidence might have led us to anticipate."

While under the current climate, mortgage application are likely to be decreasing, further CML research has revealed that long-term fixed rate mortgages are growing popularity amongst borrowers in spite of a general lack of support from mortgage brokers.

Find out more by reading our guide to mortgage interest rates or learn about fixed rate mortgage

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