Banks 'still need government support' to give mortgages

Britain's banks and building societies today warned they were still nowhere near strong enough to survive in the mortgage market without government support.

The Council of Mortgage Lenders said its members would have to cut the amount they lend to home buyers and owners if the Government insists they repay the £300 billion they have received in taxpayer support since 2008, when interbank lending dried up in the credit crunch.

The Government gave the industry the money through its Special Liquidity Scheme and Credit Guarantee Scheme which were intended to replace lending to British mortgage institutions on the global wholesale market. Both schemes are due to be paid by 2012 and 2014.

The CML's Bob Thomas warned that house price rises gave the impression the market was returning to health but obscured the seriousness of the underlying problems for mortgage lenders in finding financing.

Retail deposits cannot be big enough to replace the shortfall in interbank lending, the CML says in a paper for politicians.