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Mortgage market confused by government demands

As they say, the devil is in the detail and despite hitting the headlines for saving the world economy it seems that there is confusion and anger brewing a little closer to home. Announcing a sharp drop in mortgage lending in August the Council of Mortgage Lenders (CML) has asked the government for clarification with regards to the terms of new funding for the industry.

Initially it as thought that the government was pushing for banks to return to 2007 lending levels, despite the current state of the market. However, after the initial comment by Alistair Darling the CML claims to have received private assurances from the Treasury that the 2007 level condition was not cast in stone, only then to be contradicted again by the Chancellor.

While the move by the government is well intentioned, how would the banks be able to return to 2007 levels when there is literally zero demand in the market? Surely this would be reckless in the extreme and set the banks up for yet another round of bad debt provisions.

What does the government actually mean by 2007 lending levels? What happens if the industry is unable to reach these levels?

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