Will government intervention end the credit crunch?
A treasury report into ways the
UK economy can recover from the current slowdown has concluded that the government have to guarantee billions of pounds of the mortgage market.
In recent months, the availability of mortgages has been reduced by banks and building societies, and many of them are asking for larger deposits or are lending smaller amounts.
The new report fears that a long-term mortgage drought would turn the current downturn in house prices and consumer spending into something considerably worse.
One option for improving the availability of mortgage finance would be for the government to guarantee new better quality mortgage-backed securities, to re-stimulate demand for these securities.
Government intervention was just one of several options the report put forward but one that was supported by the Council of Mortgage Lenders (CML). The option has also caused controversy, however, because it would mean taxpayers money covering risks taken by large banks.
