Crosby Review 'Broadens Mortgage Rescue Scheme'

Findings from Sir James Crosby's review of mortgage finance are to be considered by the chancellor of the exchequer.

The new report proposes that the Bank of England and the government should work in tandem to improve the market conditions for major lenders. This would involve an expansion of the Bank's current £50 billion rescue plan, known as the Special Liquidity Scheme (SLS).

Under the terms of the scheme, banks and building societies are allowed to trade forms of hard-to-sell financial instruments, known as asset-backed securities, for safer government bonds. These can then be sold on, boosting revenues for the firms.

Asset-backed securities originally lost value and become hard to sell on due to the credit crunch. They have therefore caused something of a "log jam" on banks' balance sheets. SLS was introduced earlier this year in a bid to unblock this jam.

The report - which will be made public later this morning - is understood to recommend that banks be allowed to trade in asset-backed securities which incorporate new mortgages. This is in contrast to the scheme's current rules, which only allow assets backed by mortgages which were lent in 2007 or earlier.

With the scope of securities which can be sold broadened, it is hoped, revenues will be boosted further - and customers will feel the benefits in the form of cheaper loans.

Sir James is the former chairman of HBOS, the UK's largest mortgage lender.