48 hours until the government figures out the mortgage lending problem

In the press today there is speculation that the government will take stakes in various high street lenders in return for the lenders, lending to small business and house buyers.

Now I have blogged before on why mortgage lending is shot to pieces at the moment in this post, but to summarise

Gordon Brown presided over a mortgage industry that went from lending 3 times provable income with a 5% deposit to an industry that was lending 6 times income, not asking for proof of that income and lending 125% of the property value. A significant loosening of criteria. This pushed up property prices way above their true value.

With the FSA investigating, lenders have gone back to more sensible lending criteria.

The banks will take our tax payer money, the government will demand mortgage lending and the banks will say 'no problem - give us some borrowers with a 5% deposit and property at 4 times their provable income and we will lend'. Only then will the government figure out the problem.

Property prices are suspended at about 20% above where the lenders are lending, falling rapidly and will meet the demand later next year.

The government needs some ideas for how to help the property price and the finance meet quicker if it wants lending to resume sooner.