Just as mortgage rates begin to fall, the progress is threatened by the potential end of the Government's Special Liquidity Scheme that poured in excess of £50billion into the market.
The Council of Mortgage Lenders (CML) which accounts for 98 per cent of the mortgage market wrote to the Chancellor, urging him to extend the Scheme that is due to end in October 20.
The Scheme was launched in April in response to the mortgage
market drought - lenders were withdrawing products and some building societies stopped providing mortgages all together as banks were reluctant to lend to each other while swap rates continued to rise.
And, since the Scheme began,mortgage rates
have been falling, indicating its success, despite mortgage lenders' reluctance to admit to using the scheme. According to reports, the scheme has been an integral part of the mortgage market, and it is believed that the true extent of the emergency facility is in excess of the original £50billion.
In the letter to the Chancellor, director general of the CML, Michael Coogan, referring to the recent Government mortgage proposals, said: "While we welcome the steps the government has taken, we continue to see the funding problems in the mortgage market as a fundamental bar to meaningful housing market recovery."
Commenting on the Crosby review that predicted the mortgage strife, the letter continued, "The interim report by the Crosby review was an accurate portrayal of the problems and prospects for mortgage funding. I therefore welcome your confirmation yesterday that the final Crosby review report would be available this month.
"We believe that an early announcement of the renewal/extension of the Special Liquidity Scheme and any other measures being planned will help to resolve market uncertainty," Mr Coogan added.
However, the Special Liquidity Scheme was only ever meant to be a temporary measure, as Mervyn King stressed on its launch. Mortgage lenders
who do borrow from the Scheme are supposed to pay back the loan within three years, but the threat of recession is putting doubt over this.
For now though, mortgage lenders continue to reduce their rates, just this week Abbey, Lloyds TSB and Yorkshire Bank have reduced rates and arrangement fees, however, if the Scheme ends, so too could the low rates.
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