The Bank of England (BoE) recently announced a three-month extension to its Special Liquidity Scheme (SLS) which had been originally set to end in October.

The SLS was launched by the BoE in April as a response to the lack of liquidity in the mortgage markets. It allowed banks to swap hard to trade mortgage backed securities for UK Treasury bonds for up to three years. A statement from the BoE said that the extension was due to ‘the current disorderly market conditions’ and that it would allow banks to ‘plan their access to the scheme in an orderly fashion’.

The Governor of the BoE, Mervyn King, previously said that he was against an extension to the scheme as he believed it was not the role of the central bank to provide long-term funding for the financial markets. The statement from the BoE said that it would release details of permanent reforms to its market operations at a later date. The SLS will now be open until 30 th January 2009.

Jon Neale, head of development research at Knight Frank, told PIN: “The extension of the scheme is good news in the long-term, but it will take some time before the effects are felt in the housing market. Banks will be concentrating on repairing their balance sheets rather than on building new business and it will be a while before normality returns to the mortgage market. However, it does mean that the point at which finance becomes easier to acquire and the housing market begins to revive could arrive sooner.”