Bank of England to reduce assistance for mortgage market

The Bank of England has today ruled out further assistance for the UK mortgage market with confirmation that the Special Liquidity Scheme which targeted lenders in the UK will not be extended past January 2011. For clarification, this is a totally different scheme to the quantitative easing program and was purely targeted at the mortgage arena.

Mortgage lenders have reacted with surprise that the Bank of England has confirmed the scheme will end next year and there are fears that mortgage rates could rise in the short to medium term. The Council of Mortgage Lenders estimates that there is a liquidity shortfall of £300 billion in the marketplace, i.e. the difference between funding required for property purchases and the liquidity available in the marketplace.

After all of the hard work which has been undertaken over the last 12 months it seems a little short-sighted that the Bank of England has today announced the ending of the scheme next year. However, if the UK economy recovers between now and January 2011, there should be a natural increase in liquidity in the mortgage market without further Bank of England assistance. Unfortunately, there is no getting away from the fact that today's announcement is a big disappointment for the mortgage arena.