Problems in the UK mortgage market are set to continue, claims the BSA…

According to Iain Cornish, chairman of the Building Societies Association (BSA), mortgage markets will take two years to recover from the credit squeeze. He explained: “Even when recovered, they will be very different to the early years of this decade. However, a more sensible mortgage market should return in the longer term.

”The credit crunch has led to a rapid shrinking of the mortgage market as lenders find it harder to raise funds. Even so, the credit squeeze has not caused building societies as much pressure as banks as they do not have the same reliance on wholesale funding as some of the major mortgage banks or Northern Rock did before it hit trouble.

BoE need to stay on the ball

Building societies benefited from the crisis at Northern Rock, with many customers moving their savings. In turn, their share of net lending has risen from 19% in the first three months of 2007 to 25% in the same period of 2008 - and they are continuing to lend.

Mr Cornish welcomes the recent move by the Bank of England to allow banks and building societies to swap potentially risky mortgage debts for secure government bonds to help them operate during the credit squeeze, but accepts it is not the ultimate solution:

"It will not in itself solve the credit crisis, it certainly isn't going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels, but it should help to underpin confidence.

"It is vital for the Bank of England to remain very close to what is happening in markets, and it should not hesitate to intervene further and extend the facility if that is what is needed."