Bail Out for Mortgage Industry

The Bank of England announced plans to inject extra liquidity into the troubled mortgage sector.

The government and Bank of England have been concerned about how the level of mortgages has dried up since the start of the subprime crisis.

The scheme allows big banks like Natwest, HSBC, Halifax and others to exchange mortgage securities for government securities. Government securities are much more trusted and hopefully this should ease interbank lending and overcome the problems in the mortgage sector.

However, the Council of mortgage lenders indicated that they the scheme may not translate into lower interest rates for homeowners. The Banks were not enthusiastic about the terms of the deal, which required a premium for exchanging securities. Also in the current climate there are little competitive pressures to reduce rates and the Banks may keep their stricter lending criteria for a while.

See: More details on the Bank bailout and whether it will help overcome the problems.