Wednesday, January 23, 2008
No room for movement and no easy way out
Turning loans into bonds and selling them to raise funds has become a linchpin of the UK mortgage industry, but since August banks have found it almost impossible to sell any such retail mortgage-backed securities because of the crisis in the money markets. -There is a risk, if house prices fall, of a vicious cycle developing with declining collateral values leading lenders to tighten credit further, some economists say. -“The only thing that really stops that is if the Bank of England steps in – but the Bank will say they don’t set rates to keep mortgage lenders happy,” said Alan Castle at Lehman Brothers.