Mired mortgage market to pick up

By Lorraine Turner

LONDON (Reuters) - Gloom in the housing market, where data showed confidence at a record low on Tuesday, is not expected to lift in the short term, as it will take time for the government's plan to bail out banks to feed through.

Council of Mortgage Lenders data for August showed new lending dropped 63 percent year-on-year to 6 billion pounds, with the number of new mortgages falling 60 percent to 42,200.

"The package of measures announced yesterday will have a positive effect, but it will take time for it to feed through to the mortgage market," CML director general Michael Coogan said.

When unveiling the planned government bailout on Monday, Chancellor Alistair Darling said: "The availability of lending to homeowners and small businesses will be maintained to at least 2007 levels."

Royal Bank of Scotland, HBOS and Lloyds TSB will receive 37 billion pounds in cash injections, making the state potentially their largest shareholder.

A CML spokeswoman said: "We would be very surprised to see the lending in the same volume terms as 2007," and mortgage lending would likely not pick up markedly until the first quarter of next year.

But the banks may struggle to bolster the mortgage market in a period of deep risk aversion.

Extra liquidity from the government would be important, but creditworthiness, demand and market context are equally important factors for mortgage lending volumes, the CML said.