CML: Bank of England special liquidity scheme

The CML welcomes the announcement of a special liquidity scheme by the Bank of England, initially likely to be around £50 billion, and hopes it will have the desired effects of improving the liquidity position of the banking system and restoring confidence in financial markets.

CML director general, Michael Coogan said: "This is a welcome move by the Bank of England, previously requested by the CML, to address the liquidity shortage which is undermining the markets and keeping LIBOR stubbornly high. Mortgage assets in the UK continue to perform well, and the Bank has structured the scheme to ensure banks and building societies pay an appropriate price for the facility to minimise the risks for taxpayers.

"What the scheme does not do is give all mortgage lenders direct access to the new funds. In particular, it does not include smaller building societies and specialist lenders.

"Further details are also awaited on how much of the additional liquidity might be recycled responsibly into mortgage products or pricing, so that lenders can bridge the gap between how much consumers want to borrow and how much funding is available this year.

"The recent trend of mortgage products being removed and mortgage prices increasing for new customers will be affected more by how LIBOR responds to the announcement. The improved liquidity is unlikely to reverse the trend to higher mortgage costs we have seen in recent weeks."