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CML: Rock factor may help ease lack of lending supply

CML director general Michael Coogan said: "While other lenders will no doubt be watching carefully to assess the competitive impacts of Northern Rock returning to the market as an active mortgage lender, in overall market terms anything that improves the supply of lending is a positive.

"Mortgage redemptions funded nearly all the £18billion of the loan that Northern Rock repaid to the Government. This was £18billion that had to be absorbed by the rest of the other mortgage lenders.

"By removing this market pressure, other lenders as well as Northern Rock should experience an increased capacity to lend to other borrowers."

Meanwhile, Annie Shaw of consumer finance website CashQuestions.com said: "The decision by the Government to allow Northern Rock to start lending again by pumping as much as £14billion into its coffers is good news for borrowers who are finding it increasingly difficult to source affordable loans.

"We will have to wait and see what effect this move will have on the market. The reaction of other lenders – who have so far been slow to comment – will be an interesting one because if the Rock enters the market aggressively this could raise competition issues.

"Further, if the Rock pitches its lending rates too low, there will be complaints that Government subsidy of mortgage rates for certain privileged borrowers is not a reasonable use of taxpayers’ money.

"However, if rates are pitched too high, then the Northern Rock initiative will not be a great deal of help. The issue for existing borrowers is not availability of lending but affordability and competitiveness.

"First-time buyers may still find borrowing difficult. Mr Darling has said that Northern Rock will not lend more than 90% of a property’s value, which will exclude many first-time buyers from the market, even where the mortgage rate is attractive.

"The biggest fear for first-time buyers – and indeed all would-be buyers – and a considerable factor keeping them out of the market, is fears that house prices still have further to fall. It remains to be seen whether the latest attempt to stimulate lending will address this currently systemic problem in the housing market.”

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