Manhattan Real Estate Voice

Mervyn King, the governor of the Bank of England, has told the Treasury Select Committee in the House Of Commons, that the recent £50 billion plan that has been launched is not designed to kick start the mortgages market, but is a move that the central bank hopes will persuade banks to lend to one another at affordable rates again. The plan was announced earlier this month, and will enable mortgage lenders to exchange mortgage assets for government bonds.

Since the onset of the global credit card crunch, which came into play last year, inter-bank lending has become increasingly expensive and difficult to obtain, and this has resulted in more and more banks unable to fund their lending operations at normal levels, thus having to tighten up on their lending criteria and cut back on their lending levels. However, whilst many may have been under the impression that the recently launched plan was designed to increase liquidity King has confirmed that this is not the case, and the actual aim of the plan is to increase confidence amongst lenders to encourage them to lend to one another again, which will have a knock on effect on liquidity levels.

King stated: “There is the need for an adjustment in the mortgage market. But I do think the improved confidence in the banking sector, which I think this scheme will eventually restore, will feed through to borrowers and we’ll see the mortgage market operating on a more normal basis.” It is thought that the new plan will take some time to take effect, which means that borrowers will not see immediate effects. However, it is hoped that over time the plan will help to ease the crisis that has hit the mortgage markets over recent months.