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Government set to release guaranteed bonds backed by mortgages

In order to try to inject yet more liquidity into the mortgage market it has been announced that the government has accepted the proposals from the Sir James Crosby report which has prompted the government to look at the potential a £100 billion mortgage bond guarantee system. The government would auction off guarantees for Triple-A rated bonds which the mortgage companies could then attached to the bond to give the ultimate guarantee to the investment instrument. This would then allow mortgage companies to use their mortgage bonds as collateral to raise more capital.

As we have covered on a number of occasions, the key to success in the mortgage market is liquidity and without this, rates will creep higher and terms will get tighter and tighter. While there is still some work to do on the £100 billion guarantee programme, to ensure it abides by EU competition laws, it seems as though we could see this in place before the end of the year. Whether this is the final piece of the jigsaw for the mortgage market remains to be seen but there is no doubt that it will give more backbone to the sector.

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