A government scheme to revive the UK’s ailing mortgage market was “doomed to fail” from the beginning, ministers have said.

The £50bn asset-backed guarantee scheme (ABS) has not resulted in the expected increase in sales, according to the Communities and Local Government (CLG) Committee. The committee added that further steps were needed to boost mortgage lending for the housing market to recover.

Skills and jobs within the UK’s construction industry must also be protected, according to the committee’s report. It warned that following the previous recession it took ten years to rebuild capacity in the industry.

The report by MPs followed two separate reports by PricewaterhouseCoopers and the Royal Institute of Chartered Surveyors which suggested that the UK property market would struggle to make a “meaningful” recovery until more mortgages are made available to consumers.

Whilst mortgage lending picked up in May, according to figures from the Council of Mortgage Lenders (CML), the number of home loans was still down 28% compared with the same month last year.

The government’s asset-backed scheme, announced in this year’s Budget, provides guarantees on lenders’ mortgage-backed securities, enabling them to sell on mortgages to investors and thereby raise new money to lend to consumers.

However, due to restrictions on which institutions can take part in the scheme and the types of loan offered, none of the major banks has issued a security with such a guarantee.

“In its current form the ABS is a leap that reaches across only half the chasm: impressive, but doomed to fail,” said chair of the committee, Dr Phyllis Starkey.

“If we are to meet house-building targets, then CLG ministers and senior officials must maintain pressure on the Treasury to bring forward new measures to get the mortgage markets moving.”

The report added that the Government had focused too strongly on promoting home ownership, without giving enough attention to the rental market.

“We now need a vigorous debate to review this approach and formulate a more coherent vision to guide effective housing policy and investment into the future,” Dr Starkey said.

This entry was posted on Tuesday, July 14th, 2009 at 2:18 pm and is filed under Housing Market, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.