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Help came there none. Sir James Crosby, the former HBOS chairman asked by the Treasury to review a stricken UK mortgage market, has thankfully resisted the temptation to recommend reviving it with a vast taxpayer subsidy. Creating Gordon Mac in the mould of Fannie Mae and Freddie Mac might breathe life into mortgage-backed securities but it would postpone a solution to the core problem. The need of the hour is less for the government to soak up the risk inherent in a spivved-up housing market than for the UK’s overvalued property prices to fall steadily back to earth. Tuesdays Bank of England data showed loans approved for house purchases fell 42 per cent from the previous six-month average. Credit withdrawals by lenders unable to tap a defunct market for residential mortgage-backed securities explains only part of this decline. The RMBS market, which funded two-thirds of new mortgage lending in 2006, has in the past 12 months suffered an implosion of investor demand. It will return but, in the meantime, lenders needing to refinance £40bn in RMBS and covered bonds each year until 2010 must fund themselves from more costly alternatives.

The real issue, however, is less the reduced supply and increased cost of credit than wilting demand for it from consumers convinced UK house prices have further to fall before they reach fair value. Prices are down, but not yet to levels that make them affordable. The ratio of the stock of unsold homes to monthly sales jumped to 17 times in June, up from 10 at the start of the year. UBS calculates this inventory overhang is now increasing almost as sharply as it did at the start of the last UK housing downturn in 1988-89, when it tripled in the space of a year. This stand-off between buyers and sellers cannot last much longer.

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