A bizarre situation has arisen where mortgage providers have had to defend their lending policies after the Treasury Select Committee of MPs said they are not ‘hungry for business’ and their caution is damaging the market.

The Council of Mortgage Lenders (CML) said its members wanted to help the ailing housing market by helping first-time buyers gain access to finance. But lenders had to weigh this up against the risks of offering ‘undue incentives’ to those wanting to buy. This seems fair enough since it was what brought about the current crisis in the first place. 

The chief UK economist at Morgan Stanley today said it could take a further 5% to 10% fall in prices for the market to ‘stabilise’ and activity to pick up.  

While warning this forecast was an ‘educated guess’, the analyst, who is also a director of the Financial Services Authority, said this level of decline may be needed to move beyond the current ‘very awkward period’ in which many people were shunning the market because they expected prices to fall further.  

Appearing before the Committee, industry representatives faced accusations of not doing enough to support activity in the housing market as prices continue to fall. 

Banks and building societies have sharply cut back on mortgage lending amid the current financial turmoil; the government made an increase in support for homebuyers a pre-condition of its £37bn bailout of a trio of High Street banks.  

MPs said lenders seemed content to hoard cash in the current climate and let the market determine how far house prices should fall, leading to a sharp rise in “traumatic” home repossessions.  

Asked about the current state of the housing market, Nationwide’s chief economist said prices were now falling at a faster rate than in the early 1990s.

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