The Council of Mortgage Lenders has backed down after criticizing the govt’s plans to force banks benefiting from its bail out plan to boost lending to 2007 levels.

The trade body for mortgage lenders said it welcomed the government’s plan to restore the flow of lending so good borrowers can access the housing market. The CML earlier said it was not desirable for banks to increase the volume of lending to the levels seen in 2007 while house prices were falling.  

Chancellor Alistair Darling told the House of Commons today the CML had misunderstood the Treasury's statement on lending. Darling said returning lending to 2007 levels did not mean a return to the irresponsible lending practices of past where banks lent ‘willy nilly’ to anyone who turned up. 

The CML had said earlier the banks’ and Treasury statement was more like a generic pledge to give good borrowers access to loans than a commitment to match 2007 lending volumes. 

The government's deal with Royal Bank of Scotland, Lloyds TSB and HBOS will see the banks committing to offer competitively priced mortgages and loans to home buyers and small businesses.  

Most of the mortgage market welcomed the government’s move to shore up the stability of banks and the markets but said the short-term impact on borrowers was unclear. 

‘It is still quite early to tell what affect this will have but we welcome decisive action which is important for confidence to return to market,’ said Melanie Bien, director at brokers Savills Private Finance. ‘We can’t say yet with government people on the board [of the banks] how much they will interfere with the day to day.’ 

Bien said the rate at which banks lend to each other (Libor) had remained ‘stubbornly’ high despite the base rate cut from the Bank of England. She said the commitment by banks to lend more would do little for first-time buyers with most lenders continuing to concentrate on low risk business.