In light of the momentous financial events in the US and UK that sent shudders through stock markets around the world, the Council of Mortgage Lenders (CML) has warned that there will continue to be a shortage of loans for house purchases.

The group warned that while the recently introduced Special Liquidity Scheme (SLS) will offer some respite and encourage financial institutions to lend among themselves, the lack of incoming funding into the mortgage market will still need to be addressed in the near future. It described this shortage of funding as the fundamental cause of the recent financial woes experienced by banks on both sides of the Atlantic.

Principal among the casualties has been Lehman Brothers, the fourth-largest investment bank in the US, which collapsed after the Federal Reserve refused to secure its liabilities, many of which were locked up in the American home loans market. Meanwhile, in the UK HBOS narrowly escaped failure after it secured a buyout deal with Lloyds TSB, which is now the largest mortgage lender in the country.

The CML added that other unprecedented steps in this period of "high-octane volatility" included the extension of the SLS, where the Bank of England injected an additional 20 billion pounds in public funding into the UK marketplace in an attempt to restore calm. The move came despite the Banks governor Mervyn King expressing an earlier opposition to upping the level of support coming from public coffers.

However, the group warned that despite the additional investment, there will need to be a step change in global economic prospects in order for the mortgage market to get back on its feet.

"The fundamental market problem remains an actual or perceived shortage of available funding. The extension of the SLS through to the end of next January is certainly welcome and will provide some headroom for getting through what could have been a difficult end-of-year period. But the SLS only addresses the issue of liquidity, not the root cause of an ongoing lack of funding," the group claimed.

For those who have found their ability to secure a mortgage limited in recent months as the credit markets have dried up, taking out a personal loan may be of interest. In opting for this type of loan, people may find they are able to put down a more sizable deposit on a property, possibly making them a more attractive customer to mortgage loans providers who are wary of taking on risky debt.

Indeed, the Council of Mortgage Lenders warns that the current lack of mortgage availability is unlikely to abate in the near term.

"Economic weakness will bear down on inflation next year. Once the recent spike in utility and food prices drops out of the annual comparison, the weakening in demand should become the dominant force," it claimed.

According to figures from the group, house prices have continued to slide in recent months. In June, the group recorded a 0.9 per cent drop in overall property prices. Meanwhile, figures from May showed a record fall of 2.5 per cent.

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