The Treasury has been urged to act swiftly to kick-start the mortgage market after lenders' fears grew over the sorry state of the UK's home loan and housing sectors.

The Council of Mortgage Lenders (CML) has submitted a proposal to the Treasury which it hopes will free up the current mortgage finance logjam. The plans would see banks, building societies and institutions buy mortgage-backed securities and use them as collateral in return for funding from the Bank of England.

It is designed to reignite interest in mortgage-backed securities, which have been shunned since the collapse of America's sub-prime mortgage market. The CML believes its proposal would allow the financial system to help itself and bring the mortgage-backed security market back to life.

The group said it was "disappointed" that the Treasury-commissioned review of mortgage finance, which is being carried out by former Halifax Bank of Scotland chief executive Sir James Crosby, would reportedly not offer any solutions until autumn at the earliest.

Sir James is heading a team of outside experts and officials from the Bank of England and Financial Services Authority. Their review, which is expected to be published within the next two weeks, is only said to be outlining the problems facing the market in the initial report.

Michael Coogan, director general of the CML, said: "If they act quickly, there is a window of opportunity here for the Government and the Bank of England to break the logjam in the housing and mortgage markets and underpin confidence in the financial system.

"The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending," he added. "A year into the credit crunch, there is no merit at all in waiting until the autumn before taking steps that will help the housing market to remain more resilient."

The Treasury said: "We thank the CML for their representation. Sir James Crosby's work on the secondary mortgage market is already considering a range of ideas such as this, and will present an interim report to the Chancellor during the summer."

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