MPs attack mortgage lending scheme

A Government scheme to boost mortgage lending has been criticised by MPs who said it was "doomed to fail".

The Communities and Local Government (CLG) select committee has called on the Government to do more to kick-start the mortgage market after it said the £50 billion asset-backed guarantee scheme (ABS) was not working.

The ABS was announced in this year's Budget and aims to provide guarantees on lenders' mortgage-backed securities.

It was hoped this would make it easier for them to sell on mortgages to investors, raising new money that consumers can then borrow.

But strict criteria means that some institutions are unable to take part in the scheme, while only bundles of loans with the high AAA credit rating are eligible to be used.

Another stipulation of the scheme is that the mortgages being securitised must also have been written after January 1, 2008. In addition to this, they cannot have had a higher than 90% loan to value ratio when they were first arranged and the homeowners must not have adverse credit histories.

Dr Phyllis Starkey, chair of the committee, said: "In its current form the ABS is a leap that reaches across only half the chasm: impressive, but doomed to fail.

"If we are to meet house-building targets, then CLG ministers and senior officials must maintain pressure on the Treasury to bring forward new measures to get the mortgage markets moving."

She added: "We welcome the additional investment the Government has made in building homes for social rent and in low-cost home ownership.

"But this won't on its own be enough to meet demand. The availability of private mortgage finance is crucial, and the key to unlocking that finance is the Treasury's asset-backed guarantee scheme."

The report also called on the Government to adjust policy to concentrate more on the rental sector and said there was too much focus on homeownership

Ms Starkey said: "We now need a vigorous debate to review this approach and formulate a more coherent vision to guide effective housing policy and investment into the future."

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