Mortgage Funding Gap is £300m reports Islington Mortgage Broker, London Mortgage Advice Thursday, 4th February 2010

A £300bn shortfall in the amount of funds they have available to lend out to mortgage borrowers in the future is faced by mortgage lenders they have warned.

Lenders are having to rely on the money they get in from savers, along with the billions of pounds made available by a variety of Government bail-out schemes, to provide the funds they lend out as mortgages, with the securitization (or ‘wholesale’) markets where lenders traditionally went for money now almost completely closed.

There will be a £300bn funding gap, which could significantly reduce mortgage product choice for borrowers, once the Government schemes end in 2014, the Council of Mortgage Lenders (CML) calculates.

As loans would be restricted to those who could offer a large deposit, it could also impact first-time buyers.

The CML said, "The UK [could be] at risk of a chronic under-supply of credit - and the rationing of mortgages for customers - for many years to come."

Forcing the Government to fill the void with programmes such as the special liquidity scheme and the credit guarantee scheme, the securitization markets closed after the credit crunch set in in 2007.

Despite a little recent activity on the wholesale markets, the CML is concerned that, they will never return to the levels seen before the credit crunch, and the gap will not be filled by deposits from savers.

"We are likely to see a long-term decline in choice for UK mortgage customers unless there is a policy approach intended to encourage the development of wholesale funding," the CML said.

A "clear strategy" was required to put the UK mortgage markets back on a "sustainable footing" immediately after the general election.