IMLA calls on BoE to continue liquidity support

The Intermediary Mortgage Lenders Association (IMLA) welcomes the Bank of England’s involvement in offering additional funds to ease the ‘credit crunch’ – even if yesterday’s auction attracted no bids.

IMLA believes the Bank should continue to provide liquidity support as and when needed, to reassure the market and ensure that borrowers on mortgages linked to market rates will not suffer undue volatility in the cost of their loans.

Peter Williams, Executive Director of IMLA, says: “The UK mortgage market is fundamentally very sound, with good credit quality and arrears levels remaining low. Indeed, in the wider economy consumer confidence is solid and long-term demand for homes continues unabated. However, recently our markets have been temporarily disrupted by a loss of confidence among international investors who are, unjustifiably in our view, nervous about the credit quality of UK mortgages that have been securitised. This has had an impact on the availability and price of mortgages to the consumer, with a significant reduction in capacity in the market.”

Indeed, the benchmark 3-month LIBOR rate rose from around 6% at the beginning of July to a peak of over 6.90% on 11 September – more than 1% higher than Bank base rate.

“The Bank of England has an important role in maintaining the financial stability of the UK markets and banking system, and the squeeze on liquidity in the market has pushed inter-bank money market rates up sharply – with LIBOR standing consistently well above Bank of England base rate, sometimes 1% or more. IMLA very much welcomes the Bank’s decision to intervene by providing additional liquidity and taking UK mortgage assets as collateral. The absence of any take-up reflects the fact that normality is returning in the money markets, as well as the fact that institutions were deterred by the Bank’s punitive rate and continuing concerns over anonymity given investor market sensitivities.”

“By continuing their programme to provide funds using mortgages as collateral, perhaps at a less punitive rate, the Bank will demonstrate its confidence in the quality of UK lenders’ mortgage books, and help to bring 3 month LIBOR down to within sight of the Bank’s base rate at 5.75%. There are encouraging signs the market is beginning to move and the Bank must work to maintain momentum.”