Crosby predicts zero net new mortgage lending in 2009

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by Lin Freestone

The Crosby Report predicts that net new mortgage lending will fall below zero in 2009, from the £40bn that will have been lent during 2008. In 2007, the lending figure was £108bn.

Sir James Crosby, who prepared his report at the request of the government, said that the majority of lenders have committed to reducing lending between 2008 and 2010. Lenders are also expecting to be badly affected by redemptions of mortgage-backed securities amounting to £160bn during the same period, a situation which has convinced Sir James that net new mortgage lending will decline to zero next year.

He expects only a modest recovery in mortgage lending in 2010.

Sir James Crosby, who is a former chief executive of HBOS, recommended that the government should encourage the banking industry to standardise mortgage-backed securities.

The International Accounting Standards Board should also be encouraged to reconsider its strategy of fair-value accounting. Sir James considers this has forced banks to reduce the value of their assets and has caused inter-bank lending to seize up.

The report also set out the case for the government to intervene in mortgage finance markets by guaranteeing £100bn of mortgage-backed securities in 2009 and 2010.

In his pre-Budget report, Chancellor Alistair Darling stated that he supports this proposal. He will discuss the matter with the EU, as its approval for such state aid will be required.