Mortgage market 'dysfunctional'

Mortgage lenders expect 2009 to remain a difficult year

The UK mortgage market remains "highly dysfunctional", according to the chairman of the lenders' trade body.

Matthew Wyles, chairman of the Council of Mortgage Lenders (CML), said early signs of a seasonal increase in demand showed the market could be stabilising.

But he warned that 2009 was going to be "very, very tough" for lenders.

The group's director general claimed that a "backroom industry" of top-up loans could emerge if high loan-to-value mortgages were banned.

Repossessions

Mr Wyles, addressing the CML's annual dinner, said that mortgage arrears and home repossessions remained at "controllable levels" given the current economic climate.

But, despite welcoming the range of measures introduced by the government to support the housing market, he said the year would remain tough.

"The UK mortgage market remains highly dysfunctional which should come as no surprise, as the global banking system has been through an annus horribilis," said Mr Wyles, a director at the Nationwide Building Society.

He claimed that lenders were facing unfair competition from Treasury-backed National Savings for savers' deposits.

"This sucks money away from High Street lenders and undermines government's policy to encourage mortgage lending," he said.

"The net result is that the relative cost of retail funding is sky high and this inevitably impacts on mortgage pricing."

The CML's director general Michael Coogan warned that any "backlash against risk" that led regulators to ban mortgages that only required a small deposit from borrowers was problematic.

"It is all too easy to see a whole new backroom industry of the less scrupulous kind springing up to offer top-up lending in such an environment," he said.