Rate cuts alone cannot help mortgage market - AMI

Monetary policymakers should be following the Crosby Report's recommendation to restart the mortgage finance markets rather than focusing on cutting interest rates, according to the Association of Mortgage Intermediaries (AMI).

Despite the Bank of England's base rate hitting an all-time low of 2% yesterday, some sections of the mortgage industry are worried the move will have little impact if banks do not have money to lend.

AMI's director general, Chris Cummings, has welcomed the rate cut, but said more needs to be done to improve the flow of finance for consumers and businesses.

While interest rates have fallen considerably over the past year, the amount of money lent for mortgages has fallen by 44% according to the CML, as banks are wary of handing out new loans and cannot get the capital needed to finance them.

While lower interest rates will provide some relief to consumers on tracker and variable mortgages, they will have a detrimental impact on savings deposits.

Cummings believes this is likely to reduce savings rates, meaning the banks will have less cash to lend.

"The negative impact of a lower Interest Rate on savings will make it harder for some Banks to lend.

"It is therefore essential that the Government intervenes swiftly to implement Sir James Crosby's recommendations for the mortgage finance markets."

David Bexon, managing director of Smartnewhomes.com, also feels the Government should make a greater effort to ensure banks lend.

"The Government also needs to do its part to make sure rate cuts are passed on. Perhaps more significantly however, it has a duty to encourage increased lending, albeit more responsible lending going forward," he explains.

"The Government, and therefore the UK taxpayer now own a significant proportion of some of the country's largest banks, and we now need to see these institutions starting to lend to those who need and can afford to borrow."

Crosby has recommended a range of reforms to return liquidity to the markets, which closed down shortly before the collapse of Northern Rock in summer 2007.

Cummings claims the reforms recommended by Crosby would revitalise the market and ease funding conditions, allowing consumers to access more credit, and has called on the Treasury to act immediately.

"We want to see these measures implemented now and not delayed further," he says.

Contact: John Bakie, Tel: 020 7484 9805, e-mail: John.Bakie@incisivemedia.com