Many mortgage intermediaries could disappear as the drought in mortgage financing drags on until the end of 2010, warns Treasury adviser James Crosby.
In his interim report on the state of the mortgage market, Crosby also warns a long-term lack of mortgage finance could make the downturn in house prices and consumer spending far worse.
He says the crisis is affecting both lenders and distribution channels and could have a devastating impact on some adviser businesses.
"Faced with much lower volumes and lenders switching back to distributing through their branches, mortgage intermediaries, hitherto an important source of price competition on behalf of consumers, are under intense pressure and many will disappear," the report says.
Mark Roberts, head of financial regulation at the ifs School of Finance, welcomes the report's recognition of the role of mortgage intermediaries, and says there are still plenty of opportunities for mortgage brokers to help first time buyers in this difficult market.
Crosby says mortgage markets are adjusting to the shortage of funding and lenders are seeking to re-price existing mortgages but this is "a slow process which will take two or three years to run its course".
He says a significant new issuance of mortgage-backed securities is key and although this market would benefit from greater transparency and standardisation, such initiatives alone will not stimulate demand.
One suggestion to increase demand is for the Government to give a taxpayer guarantee to billions of pounds of mortgage loans, Crosby suggests.
This proposal is controversial, as the taxpayer would bear the risks of the loans associated with the deal; an issue that has already been problematic for the Government following the failure of Northern Rock.
The Liberal Democrats have criticised the idea, with shadow chancellor Vince Cable claiming the banks would still make their profits on the loans while taxpayers would hold all the risks.
However, Crosby has ruled out the possibility of a US-style agency to solve the crisis and says he may yet recommend "the Government should not intervene in the market, on the grounds that such intervention would create more problems than it would solve".
Crosby will deliver his final report at the time of the 2008 Pre-Budget Report.
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Have your say:
"The problem is that the lenders have stopped lending and when they do lend, they have tightened up their criteria to such an extent that they are not lending. The knock on effect is that the housing market is now dipping with prices going down. Next we'll have negative equity, especially for those with Interest Only Mortgages. I wonder how the TIMES feels now after recommending its readers to switch to Interest Only Mortgages from Repayment Mortgages to cut their costs? Don't see the FSA trying to fine the TIMES now?
As for me - I'm studying to do Equity Release Mortgages to fill the gaps left from Residential Mortgages and Investments.
James Crosby will soon realise that IFAs are a resilient bunch of under valued professionals who won't go extinct because the lenders think that they can save some money by only lending to direct customers." Tony Silver, Director, White House Mortgages Ltd
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