Chancellor Alistair Darling, housing minister Caroline Flint, and Treasury chief secretary Yvette Cooper, are to meet with major UK mortgage providers this afternoon to discuss mortgage rates and the future of the home loan sector.
The meeting follows the Bank of England's announcement yesterday that it will inject £50 billion of public money into the mortgage market to ease liquidity.
Despite the fact that the Bank has cut the base rate three times since December – from 5.75 per cent to the current level of five per cent – many mortgage providers
have failed to pass on cuts to homeowners. Mr Darling is now hoping to restore confidence in the mortgage sector so that inter-bank lending can resume and ultimately so that prices will be reduced.
The number of repossessions has risen substantially since the US sub-prime fiasco began to impact the UK mortgage market last year, with many homeowners now facing much higher interest rates. Those coming to the end of a fixed rate mortgage
are finding it difficult to secure competitive remortgage deals, while first time buyers have effectively been priced out of the market unless they can find a hefty deposit.
However, the chancellor believes the plan to allow mortgage lenders to swap mortgage assets for Government bonds should help to ease pressure on lenders and homeowners alike. "Obviously we want to make sure that institutions are sound but we also want to see the benefits of what's happening passing through to homeowners in this country," Mr Darling said yesterday.
"It's right for the Bank of England to take action. It's right we've spent the last few weeks developing this proposal which will help begin the process of getting back to normality", he added.
However, the news of the Bank of England's action has not been welcomed by everyone. Liberal Democrat shadow chancellor, Vince Cable, called for greater transparency from banks, and said: "This scheme will only deal with the symptoms of the current crisis, not the causes. The plans will expose taxpayers to the risk of a massive bank bail-out.
"The fundamental problem in the inter-bank lending market is that banks have yet to come clean about the full extent of their losses." He added that: "If banks are going to receive support from the Government, it must be conditional. Banks and their shareholders must bear the brunt of previous bad lending, not taxpayers."