What impact will the banking rescue have on the housing market? The Council of Mortgage Lenders (CML) reacted with alarm initially when it emerged the bailout included “maintaining, over the next three years, the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels”.

The council responded that returning to such levels, for the industry as a whole, would not be “prudent or desirable”. Later, after Yvette Cooper, the Treasury chief secretary, expressed disappointment at this, the CML said it welcomed the government’s commitment to restoring normal mortgage flows.

The position is straightforward. Mortgage lending has dived over the past year, with approvals down 70% and CML data showing a 63% annual fall in lending in cash terms to just £6 billion in August.

It is reasonable to argue there was too much lending before the credit crisis broke in the summer of last year, but it is equally reasonable to say current levels of lending are too low: hence the paralysis in the market. Restoring monthly mortgage approvals to, say, 70,000-80,000 a month from the current level of just above 30,000 would not make prices boom again, but would, at least, stabilise the market.

Can it be done? The rescue package goes a long way towards solving the problem of confidence in the banking system and will, in time, provide a thawing of conditions. It takes two to tango, though, and the question is whether mortgage demand - now as big a drag on activity as supply – will recover, too.

After the financial turbulence of the past few weeks, many analysts have pushed out the timing of any housing recovery to 2010 or 2011. Some think it will take longer. It is possible, however, that the rescue package will get us there sooner. This winter will be weak for both activity and prices. But come the spring, mortgage supply should be significantly better. If enough potential buyers then decide the worst of the shake-out in prices is over, confidence could begin to return gradually.

There are a lot of “ifs” in that, for good reason. In the past few weeks we have seen the most dramatic financial developments in our lifetime. The hope has to be that the global storm is blowing itself out. The danger is that it is not finished with us yet. + home.economics@sunday-times.co.uk

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