Of the many things in the pre-budget report from Alistair Darling, one stands out for housing. Sir James Crosby’s report on mortgage finance, commissioned by the Treasury, suggested that, without government action, the housing market will get a lot grimmer over the next two years.

Crosby, an ex-HBOS chief executive, set out the problem in stark terms. The “wholesale” funding markets — that is, money raised from big institutions and other investors that lenders relied on to lend to you and me — will remain largely closed. There will not be enough flowing in from savers to compensate for this. Worse, lenders must pay back some £160 billion as existing wholesale funding comes up to maturity.

You do not have to be Mr Micawber to work out what this means. If the funding is not there, neither will lending be. The net amount of mortgage lending, taking into account people paying off loans, was £108 billion in 2007; this year, it will slump to £40 billion. Next year, Crosby believes, it will go negative before a modest recovery in 2010. Such an outcome would be depressing in the extreme for housing activity and prices, turning a serious housing recession into a devastating one.

Crosby’s proposal is that the government offer guarantees worth £100 billion over two years for new wholesale funding. Lenders would bid for these guarantees and attach them to new lines of wholesale funding — mortgage-backed securities — issued to investors. The risk to taxpayers would be minimal. There has never been a default on a UK mortgage-backed security, and Crosby reckons that even in the current market, the risk is remote.

So, what happens now? Darling signalled that he was sympathetic to the idea, and is to consult with Brussels to see whether such help would contravene EU rules on state aid, then report back in time for the spring budget.

This is too slow. As Ray Boulger, of the broker John Charcol, puts it: “It will be unforgivable if the chancellor’s lack of urgency . . . stalls the long-awaited and much-needed improvement in activity in the housing market.” It has been clear for months that intervention of the kind Crosby is recommending would be needed. The longer the government delays, the less of a property market there will be to rescue.

home.economics@sunday-times.co.uk

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