RICS urges Government to get mortgage market 'moving' » Housing » 24dash.com

First-time buyers could remain frozen out of the property market unless the Government takes urgent action to get banks lending again, it was warned today.

The Royal Institution of Chartered Surveyors (RICS) called on the Government to offer guarantees to lenders to help get the mortgage market moving again.

The group warned that if the Government failed to take action, potential homebuyers would continue to be frozen out of the market, pushing both transactions and prices to new lows.

It wants the Government to introduce the recommendations put forward by former Halifax Bank of Scotland head Sir James Crosby to provide temporary guarantees for new residential mortgage backed securities (RMBS).

Banks traditionally sell on bundles of their mortgages to investors, in a process known as securitisation, to raise the money they need to fund new lending.

But the securitisation market has dried up in the wake of the problems in the US sub-prime mortgage sector, leaving banks increasingly reliant on using money from depositors to fund their mortgage lending.

RICS said there was a growing gap between buyer interest and the mortgages banks and building societies were willing to lend.

It said its November survey showed that enquiries from potential buyers had increased to the highest level since October 2006, but data from the Bank of England showed that during the same month mortgage approvals for house purchase has slumped to a record low.

RICS chief economist Simon Rubinsohn said: "With many first time-time buyers unable to find the finance to take an initial step onto the housing ladder and existing owner-occupiers needing to move similarly blighted, the time has come for the Government to take direct action to restore an orderly property market.

"As a first step in this process, RICS believes that the recommendation of Sir James Crosby to provide guarantees for the new issuance of residential mortgage backed securities should be adopted as soon as possible.

"Crucially, by removing the risk associated with wholesale lending through securitisation vehicles, Government guarantees should inject some much needed confidence back into the RMBS market."

He said the move would not be a "panacea for all the ills of the housing market", but it would help to plug the current funding gap.

RICS said the dramatic drops in interest rates seen during the past few months had had little impact on the ailing housing market, while the Bank of England's recent credit conditions survey suggested banks were likely to further reduce their lending during the coming months due to the economic downturn.