HM TREASURY News
Release (76/07) issued by The Government News Network on 11 July 2007
Following the
Prime Minister's statement today about the need to take
further steps to improve the way that the mortgage markets works,
the Chancellor of the Exchequer, Rt Hon Alistair Darling MP, has
announced a number of new initiatives to ensure that lenders have
the best access to capital market finance, and consumers are able
to take the most informed choices when buying a mortgage.
Speaking in the House of Commons today, the Prime Minister
announced that the Chancellor will consult on creating a new
regime for covered bonds which will help mortgage lenders finance
more affordable 20 to 25 year fixed rate mortgages. The Chancellor
will report by the Budget on how to overcome any barriers
preventing lenders from offering people long-term mortgages,
including the case for changes to instruments used by the Debt
Management Office.
Today's announcements include:
* new legislative proposals, published next week, for a covered
bond regime in the UK to assist mortgage firms to finance their
lending over the longer-term. The proposals will enable firms to
take advantage of the special status that covered bonds, which
satisfy certain criteria, are accorded under EU law, and will give
lenders greater opportunity to participate in the covered bonds
market, worth over Euro 1.5 trillion in Europe, and ultimately
enable them to finance more affordable longer term fixed rate mortgages;
* a Treasury led review to identify any further barriers to
lenders wanting to raise funds in wholesale markets. This is
specifically aimed at lenders wanting to offer both competitive
longer term fixed rate mortgages, and a wider variety of housing
finance products. The Treasury, working closely with the
financial services sector, will report on its findings at Budget
2008; and
* Government backing for a Private Members Bill, currently before
the House, which will increase the proportion of funds which may
be raised in wholesale markets, giving building societies more
flexibility in financing their mortgages.
Further details of these proposals will also be set out in the
Government's housing Green Paper due to be published shortly.
NOTE TO EDITORS
1. Covered bonds are a class of corporate bond issued by credit
institutions and secured against collateral, typically mortgages
and public sector loans. Credit institutions are already able to
issue covered bonds in the UK, and are doing so. However, not as
many bonds have been issued in the UK as elsewhere in the EU.
2. The proposed legislation will mean that issuers can take
advantage of the special status accorded to covered bonds under EU
law (Undertaking for Corrected Investments in Transferable
Securities Directive and the Capital Requirements Directive), and
adjust the risk weightings accordingly. This should help issuers
to access the large EU market in covered bonds and issue more
bonds. It will also help them match borrowing and lending over the
longer term.
3. The terms of reference for the Treasury review will include an
assessment of:
* the supply of and demand for financial instruments to allow the
risks of mortgage pre-payments to be hedged efficiently. This
will include an up to date assessment of whether the DMO could use
'swaptions' (a financial instrument that gives the
holder the option - but not the obligation, at a point in the
future, to enter into a swap contract, at an interest rate that is
agreed now) to better manage the Government's debt portfolio;
* the rapidly developing residential asset backed securities
market, and assessing whether there are remaining obstacles or
inefficiencies preventing further improvement in liquidity
allowing securitisation to become a greater source of housing
finance; and
* the recent financial innovations aimed at re-packaging housing
and funding related risks which tend to be aimed at people on
higher incomes, and assessing whether there may be important
obstacles that prevent these opportunities from becoming more
widely available.
4. There is a statutory requirement on building societies to
raise at least 50 per cent of their funds in the form of shares
held by individual members of building societies. The Government
is supporting a Private Members Bill currently before Parliament,
which proposes to increase the proportion of funds which may be
raised from sources other than individual's shares up to 75
per cent. This will give building societies greater flexibility
to raise funds in wholesale markets, if they wish to do so.
5. Non-media enquiries should be addressed to the Treasury
Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk
7. This press release and other Treasury publications and
information are available on the Treasury website at http://www.hm-treasury.gov.uk.
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