Crosby Review: UK mortgage crisis to last for 'two to three more years'

Britain's crisis-hit mortgage market will not return to normal for another two to three years, a Government-commissioned report warned today.

The review of mortgage financing - led by the former head of the Halifax Bank of Scotland (HBOS), Sir James Crosby - said it was inevitable that the mortgage market woes would hit house prices.

Sir James said he was looking at how to jump-start the crippled home loan sector "with some urgency".

But the interim report cautioned there was no quick fix to ease the log-jam in home loan funding and stopped short of providing any firm solutions to the lending troubles.

Sir James, who was appointed by Chancellor Alistair Darling to lead the review in April, mooted the idea of further temporary support from the Government to help stimulate the mortgage-backed securities market, which has all but dried up amid the credit squeeze.

However, he said that Britain should avoid US-style government-backed agencies to tackle the funding crisis.

"Much has been said about the case for launching a US-style agency but I think it unlikely that it would be right to tackle this century's problems with last century's solution," said Sir James.

Banks and building societies will have to wait for the second report in the autumn for his final conclusions and recommendations.

The Chancellor is also understood not to be planning to make any announcements on the issue until the Pre-Budget Report.

Plans to hold off from taking action until the autumn has already angered lenders, with the Council of Mortgage Lenders saying earlier this month that the Government must "act swiftly" to resolve the current mortgage drought.

Figures today from the Bank of England revealed that mortgage approvals plunged by nearly 70% in June to a new record low.

Just 36,000 new loans were arranged for people moving house, while net mortgage lending dropped to an eight-year low of £3.1 billion.

Lenders have been lobbying Mr Darling for the scope of the Bank of England's £50 billion special liquidity scheme to be widened to allow banks to trade in securities backed by new mortgages in return for more easily tradable Government bills.

The scheme currently only applies to old mortgage assets held before the start of the year and lenders are anxious that the existing package is not enough to ease the deepening credit crisis.

But today's Crosby Review made it clear that Government and the Bank of England should steer clear of propping up the mortgage market.

In the report, Sir James said: "I may yet recommend that the Government should not intervene in the market, on the grounds that such intervention would create more problems than it would solve."

Sir James, who headed HBOS between 2001 and 2006, was charged by the Treasury to lead a team of outside experts and officials from the Bank of England and Financial Services Authority.

The review was commissioned after the credit crunch took hold last summer when a collapse in the US sub-prime mortgages devastated the market for securities backed by home loans.

The Home Builders Federation (HBF) said it was "disappointed" that the industry has to wait until the autumn for the report's recommendations.

John Stewart, director of economic affairs at the HBF, said it could be next spring before the benefits of any action start to filter through.

"This is too big a price to pay as in the meantime steeply falling housing transactions, weakening house prices and sharply lower house building activity risk damaging Britain's wider economy," he added.

The Royal Institution of Chartered Surveyors (RICS) also reacted with dismay at the delay and called for urgent action.

RICS chief economist Simon Rubinsohn said: "The Crosby review highlights a range of options to deal with the current environment, but its failure to propose any immediate changes in the mortgage market suggest that there will be little early relief for the housing market and most particularly for first time buyers."

Liberal Democrat Treasury spokesman Vince Cable said: "Sir James' caution towards Government intervention in the housing market is welcome. It is critical that siren voices in the City don't seduce ministers into using taxpayers' money to underwrite new bank lending and re-inflate unsustainable house prices.

"It is inevitable that pain will continue to be felt in the mortgage market for some time to come, but the answer is not to put more public money at risk, which would only profit the banks.

"The Government should concentrate on helping families in danger of repossession. Ministers must allow councils to replenish their housing stock to meet rising demand."