Package for homeowners 'modest'

Chancellor Alistair Darling said the Government would work on plans to underwrite mortgage financing in a bid to stimulate the sector, while also announcing measures to protect families at risk of repossession.

The Council of Mortgage Lenders (CML) described the package as "helpful, if modest" while Ray Boulger, senior technical manager at broker John Charcol, described it as "a bit of a damp squib".

In his Pre-Budget Report, Mr Darling welcomed recommendations made by former HBOS chief Sir James Crosby in his report on mortgage finance. In it, he called for temporary Government support for the mortgage-backed securities market.

Banks traditionally sell on bundles of their mortgages to investors, in a process known as securitisation, to raise the money they need to lend to consumers. But the securitisation market has dried up in the wake of the problems in the US sub-prime mortgage sector, leaving banks increasingly reliant on using money from depositors to fund their mortgage lending.

In the Commons, Mr Darling said: "To implement Sir James's recommendation, the Government would need to obtain State Aid approval from the European Commission and resolve some technical and practical considerations. But we will proceed to work up a detailed scheme based on his recommendations and seek State Aid approval to proceed."

Meanwhile, measures to help struggling homeowners were also announced by the Chancellor. If someone is having difficulty paying their mortgage, lenders will wait at least three months before initiating repossession proceedings. In addition a scheme that covers mortgage interest payments for those who lose their jobs will be extended to cover mortgages up to £200,000. "This will help ease worries for homeowners who have lost their jobs as they look for new employment," the Chancellor said.

The Government also announced £15 million of new funding for debt advice in the Pre-Budget Report.

Housing minister Margaret Beckett said: "It is our priority to make sure that hard-working homeowners who suffer a loss of income through no fault of their own have the option to stay in their homes. The new measures ... will expand the support available to those who need it most. Everyone needs to do their bit to help families avoid the traumatic impact of repossession, and we expect lenders to do more to build on work already under way to help their customers."

Michael Coogan, director general of the CML, said: "Everything announced (in the Pre-Budget Report) is helpful, if modest".