The UK faces mortgage rationing for many years to come unless the Government reforms the way lenders can raise money, a trade body warned today.

The Council of Mortgage Lenders said the collapse of the wholesale funding markets in the wake of the credit crunch had left a £300 billion mortgage funding gap.

It said the shortfall had been filled temporarily by Government funds through the special liquidity scheme and credit guarantee scheme but warned there were “major uncertainties” about how lenders would manage once these schemes expired in 2014. It added that the gap could not be filled by savers' deposits alone.

The group said that unless the Government took steps to encourage the development of wholesale funding, there was likely to be a long-term decline in choice for mortgage customers.

“The Government needs to develop and pursue a clear strategy for putting UK mortgage funding markets back on a sustainable footing," the CML said.

“Without policy support, it may be difficult to re-establish a sustainable, long-term residential mortgage-backed securities and covered bond market in the UK on the scale needed to plug the funding gap.

“That would leave firms continuing to rely on government funding, and the UK at risk of a chronic under-supply of credit - and the rationing of mortgages for customers - for many years to come.”

The CML said the problem was being exacerbated by the scale of proposed regulatory reform and the impact this would have on lenders.

It said that while lenders accepted the need for reform in response to the financial crisis, there was a danger that the way it was implemented could create additional problems for firms.