THE TREASURY has snubbed calls from Britain’s lenders for direct government intervention to kick-start the mortgage market.

This week’s package of measures intended to stabilise the housing market will not meet a key demand from banks, building societies and housing-market lobby groups.

The Council of Mortgage Lenders has said that without government intervention in the market for mortgage-backed securities, the lending famine that has resulted in a 65% drop in new approvals over the past year will continue.

But the Treasury, which is awaiting final recommendations from former HBOS chief executive Sir James Crosby, remains unpersuaded.

Mortgage lenders said they were left with an uphill struggle after comments by Mervyn King earlier this month, when the Bank of England governor expressed scepticism about extending the Bank’s special liquidity scheme to take in new mortgage-backed securities.

This week’s package will include measures to step up housing association purchases of unsold homes and an expanded shared-equity scheme for first-time buyers. Other options include doubling the allowance for cash Isas to £7,200 for those saving for a home. Another proposal would create a new regular saver scheme with tax benefits similar to Isas.

The Bank is preparing the ground for an informal extension of its special liquidity scheme specifically for building societies. Although some are rumoured to have borrowed more than £1 billion from the £50 billion scheme, most do not have the legal structures in place to access the cash.

Societies currently setting up covered bond vehicles to let them use the Bank facility will be permitted to access the loans even if their preparations slip past the October 20 cut-off date.

The Bank’s monetary policy committee (MPC) meets this week. Analysts see little chance of a cut in rates, despite a gloomy assessment last week from David Blanchflower, one of its members.

Two members of the “shadow” MPC, which meets under the auspices of the Institute of Economic Affairs, back Blanchflower’s call for a sharp cut. Both Patrick Minford and Peter Warburton think there should be a half-point cut this week. The other seven members said it was too soon for a reduction.

The Engineering Employers’ Federation releases its quarterly trends survey tomorrow and is expected to say there has been a sharp deterioration in the economic outlook.

Despite this, it is cautious about calling for a cut ahead of the expected inflation peak over the next two months.

Steve Radley, its chief economist, said: “With a tough pay round looming, business understands the need to rein in inflation. But with evidence that the economy is stagnating, the case for a cut is growing.” Economic Outlook, page 4

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