Darling urges lenders to cut home loan costs

Chancellor Alistair Darling pressured mortgage lenders on Tuesday to bring down the cost of home loans as policymakers are getting worried about the housing market.

After years of double-digit growth, the housing market is slowing down fast and many experts are now even talking about the prospect of sharp falls in prices this year as lenders, hit by the global credit crunch, curb new lending.

That has become a real worry for Prime Minister Gordon Brown, whose popularity is slumping in the polls, as property-mad Britons are losing their confidence in his economic stewardship after more than a decade of prosperity.

Darling summoned top mortgage industry executives to his Downing Street office to discuss what steps they can take to ensure repossessions don't start to rise because consumers find it hard to refinance their loans.

"I hope that lenders continue to take their responsibilities towards customers seriously," he said.

In a joint statement after the meeting, the lenders agreed that Monday's plan by the Bank of England to allow banks to swap their hard-to-shift mortgage assets for government debt would help ease funding pressures and ultimately allow them to offer cheaper loans.

"The Bank's actions should ease funding conditions for mortgage lenders over time to help to ensure the continued availability of a wide range of mortgages for potential borrowers at competitive prices," Michael Coogan, director general of the Council of Mortgage Lenders said.

The Bank has cut interest rates three times since December to shore up the economy but a number of mortgage lenders have been raising the cost of their home loan products.

New mortgage approvals have dropped sharply and one survey this month showed house prices falling at their sharpest monthly pace since the slump of 1992.

The government has said any falls in house prices have to be put in the context of prices more than doubling over the last decade but wants lenders to do more for people facing repayment difficulties.

"It's important to recognise we are dealing with an entirely different situation in the market from what was experienced in the early 90s. Demand for housing from first time buyers and young families is high and the fundamentals of the economy are sound," said housing minister Caroline Flint, who was also at the meeting.

BoE Governor Mervyn King, however, has said he does not want to see a return to what he called the excessive lending of years past.

Lenders did not always pass on interest rate increases so the fact they were not passing on cuts was in some respect an unwinding of that, he said on Monday.