The good news just couldn’t last. After several weeks of positive news from the UK mortgage market a warning has been issued this week that the future health of the market is in jeopardy. 

The warning came as mortgage providers pointed to a £300bn shortfall in the amount they will be able to lend which will not be filled by savers’ deposits. 

This funding gap is currently filled by government schemes introduced in response to the recession, but these will end in 2014.

The Council of Mortgage Lenders (CML) says that, in the long-term, this could reduce choice for consumers and it could also hit first-time buyers, as loans would be restricted to those who could offer a large deposit. 

If this shortfall occurs, the UK could be at risk of a chronic under-supply of credit and see the rationing of mortgages to customers for many years to come. 

The funding gap was previously covered by the wholesale mortgage debt market, however, this is seen by many to have been one of the root causes of the now infamous credit crunch.

Fear of ‘toxic debts’ froze the wholesale mortgage debt market in 2007, forcing the government to step in with programmes such as the special liquidity scheme and the credit guarantee scheme. 

The CML fears that the wholesale markets will not return to the levels seen before the credit crunch for many years to come. Additionally, the gap will not be filled by retail deposits from savers.

The CML believes that government policies are needed to encourage the development of wholesale funding and that without them we are likely to see a long-term decline in choice for UK mortgage customers. 

The references in the CML reports to a “clear strategy” that is needed to put the UK mortgage markets back on a “sustainable footing” immediately after the general election clearly show how financial analysts believe a Conservative victory is necessary and desirable.

It seems clear that the CML is exaggerating a problem that does exist in the hope of maintaining the preferable treatment financial institutions have had from the Government over the past two years. No government will allow the mortgage market to freeze completely but it is vital that the benefits to the customer in terms of choice and price are balanced with the interests of mortgage providers.

The UK unemployment figures surprised everyone last week, and this week it is the turn of Mortgage figures. Mortgage lending has been described as “surprisingly strong” in December, confounding fears to the contrary. 

The Council of Mortgage Lenders (CML) said UK mortgage lending increased by 14% in December compared with November, to £13.7bn. 

The latest figures from the CML also show that UK mortgage lending was up 3% in December compared with the same month a year earlier. 

The word surprisingly is being used by analysts as seasonal factors usually mean a slowdown in December compared with November. The evidence suggests that the rise this year was driven by a surge in house purchase completions. 

The most likely explanation is that buyers of cheaper property wanted to complete their transactions before the end of the year to beat the end of the stamp duty holiday. 

Despite the stamp duty holiday ending, analysts are predicting that the mortgage market will be stronger in 2010 than in 2009. 

One factor that will slow the reduction of pressure in the mortgage market is that savers will once again expect to receive pre-crisis levels of interest on their savings. 

Traditional building society models see a direct link between the interest given to savers and the income from mortgage borrowers.  

One analyst recently describes savers as the “forgotten victims of the credit crunch”. That may have been so but their money is now in hot demand as banks - in particular those that have been nationalised or part nationalised - continue to reduce their reliance on the wholesale markets. 

This, coupled with the rates payable by the government’s National Savings and Investments, has driven up the cost of retail funding to an unprecedented level relative to mortgage rates.