The Treasury is expected to explain tomorrow how it can revitalise the mortgage market as it responds to a report published by former HBOS chief executive Sir James Crosby.
The Treasury is expected to explain tomorrow how it can revitalise the mortgage market as it responds to a report published by former HBOS chief executive Sir James Crosby.
A Treasury spokeswoman confirmed it will be making an announcement even though Crosby's report will contain only interim findings.
The final report is due in October, in time for the pre-Budget report. But the government is under pressure from mortgage lenders to step up the timetable.
Crosby was hired in April to look at problems in the mortgage market and it is expected that lenders could suffer funding problems for some years to come.
While steering clear of firm recommendations, the Treasury is expected to warn the government that it needs to intervene more in the market to offset the impact on the housing market and wider economy.
Crosby is widely expected to raise the possibility of a new liquidity scheme that will allow banks to swap new mortgage debts for government securities that it can then use to secure more funding.
In the past, up to 40% of mortgages were funded by the sale of mortgage-backed securities but the US sub-prime crisis destroyed confidence in the market, making it virtually impossible for banks to use it for funding.
The Bank of England's Special Liquidity Scheme, launched in April, allows banks to swap old mortgages for government paper but lenders say it has done little to improve the mortgage market. The scheme has so far accepted some £50bn of mortgage debt.
Crosby is also thought to have considered ways of allocating a kitemark or gold standard to mortgage securities to improve confidence in them.
There are already signs that competitive pressures are dragging mortgage rates down from elevated levels although they are still substantially above those seen a year ago.
Abbey, backed with funds from its Spanish parent Santander and building society Nationwide, is in particularly heated battle for business in a market previously dominated by HBOS.
Results from Abbey due today are expected to show it has won as much as a quarter of all new mortgages sold in the first six months of the year.
Jonathan Cornell, managing director of broker Hampton Mortgages, said: "We are nowhere near where we were before the credit crunch but we are seeing greater competition between the largest lenders."
But so far competition has been restricted to the mainstream mortgage market and usually only for those with at least a 25% deposit.
Nationwide recently cut its two-year fixed rate deal for new borrowers to 6.18% to 6.48%, and Abbey its from 6.54% to 6.34%.
Lloyds TSB yesterday trimmed the rate on its mortgages, including cutting the price of a two-year fixed rate mortgage by five basis points to 6.29%, its second cut in 11 days.
These loans are only for those with at least a 25% deposit and borrowers also have to pay a fee.
Separately, the Woolwich, which is part of Barclays, cut rates on its buy-to-let mortgages by up to 0.5%.
However, lenders faced a warning from debt management group TDX yesterday that falling household wealth is storing up consumer debt problems for the second half of this year.
The TDX Group Debt Index fell by 1% between the first and second quarters of the year, suggesting that conditions for creditors have improved slightly.
But it warned of a worsening outlook, with an 18% increase in the wealth and cost of living indicators of the index.
Mark Onyett, chief executive of TDX said: "We're already seeing far higher numbers of consumers struggling with personal debts and the pressure is set to intensify over the coming months."
