Surprise surprise, the government plan for major banks to return mortgage lending to 2007 levels is just a broad aspiration, according to the Council of Mortgage Lenders (CML).

The government wants RBS and Lloyds TSB to boost lending to house buyers and small businesses as a condition of its injection of £37bn into the banks.  

Earlier, the CML said the plan seemed not to be ‘prudent or desirable’ and called for clarification. The CML now welcomes the proposal, but confusion still surrounds its terms.  

Some £20bn of taxpayers’ cash is likely to be pumped into RBS, with a further £17bn to be put into HBOS and Lloyds TSB. This would give the government a significant stake in the banks, and the government has attached some conditions to this investment.  

These include ‘maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels’.  

The CML said it wanted clarification of what exactly was meant by this. Initially it said it doubted whether, given the current market, it would be prudent or desirable to return to 2007 lending volumes.  

But later, after discussions with the Treasury, it welcomed the aspirational view of a market where ‘credit-worthy borrowers’ have access to a good spread of mortgage products as they did a year ago.  

While the Brown government was suggesting lending conditions to banks in a bid to stimulate the mortgage market, nationalised Northern Rock announced it was not passing all of last week’s cut in interest rates to mortgage holders.  

The lender said its standard variable rate (SVR) would be cut by 0.15 of a percentage point to 7.34% from 1 November for existing borrowers.  

The Bank of England’s Monetary Policy Committee cut the Bank rate by half a percentage point to 4.5% in a surprise move last Wednesday.  

Ten lenders including Halifax, Lloyds TSB, the Woolwich, First Direct, Royal Bank of
Scotland and NatWest all said they were reducing their SVR by half a percentage point shortly after the cut.

This entry was posted on Wednesday, October 15th, 2008 at 6:35 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.