Mortgage finance report suggests funding gap higher than thought
British banks are facing double the "repayment shock" on their securitised mortgages than previously thought, leaving lenders with a major funding gap that could intensify the credit crisis, a Government report has warned.
Sir James Crosby, the former chief executive of HBOS, noted in his interim report into mortgage finance for the Treasury that "the amount of [wholesale funding] maturing each year from 2008 to 2010 is estimated at around £40bn". A number of economists had estimated the obligation to be £20bn.
Emphasis added by me.
Ramifications?
Sir James's report warned that mortgage markets would not recover for at least two years, and set out a menu of possible options the Government has for trying to revive them. However, Sir James ruled out a quick fix.
Investors were shocked by details from the report that showed that on top of being unable to seek any funding from the securitisation markets, lenders will have to pay back £40bn this year and £44.2bn next year to the investors of these packages from previous years.
Prof Spencer said: "They need to pay back this money before they can lend a penny in net mortgages. I think lending will collapse this year. The outlook for mortgage funding is dire if the Government doesn't do anything. The consequences for the housing market would be catastrophic."
Emphasis added by me.
And so the noose tightens and tightens and tightens.
Where is your money today?
Educate yourself!
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