The Bank of England needs to realise the problems hitting the mortgage market and be more active in holding back the credit crunch, Steven Crawshaw, chairman of the Council of Mortgage Lenders (CML), said today.

He called on the central bank to act like the US Federal Reserve and inject further liquidity into the markets.

The CML chief also said lenders were not shirking from the market and were taking strenuous efforts to deliver mortgages to as many customers as possible within the current funding constraints.

He demanded the Bank of England should extend its three-month loans to 12 or 24 months to boost liquidity, as well as “kick-starting” the market for new mortgage-backed securities.

Mr Crawshaw warned without action from the Bank of England there would be a “process of attrition in mortgage choice, possibly over a protracted period, with lenders managing down demand by tightening lending criteria, increasing price, or withdrawing more products from the market altogether”.

He said: “I suggest there are several steps needed on the part of the Bank.

“It needs to realise that the underlying problem may not be the one it thinks it is. Compared to the actions of the Federal Reserve in the US, our central bank stands accused of having been cautious and slow.”

He also denied charges banks were hoarding liquidity as they did not trust one another.

“We think that lenders are hoarding liquidity because they’re concerned about whether they will be able to access future funding and are managing pipelines of business very cautiously.

“They’re worried less about the here and now and credit risk in the UK mortgage market, than the uncertainty about whether they’ll be able to get funds when they need to refinance their own maturing debt commitments and new mortgage offers they are seeking to make.”

He also called on Alistair Darling to take urgent action to address funding problems, such as helping borrowers struggling with their mortgages.

“Underpinning those borrowers in serious and short-term financial difficulty to help minimise the level of repossessions is a clear spend-to-save policy.

“Yes, it has a short-term cost in the form of higher benefit payments, but it delivers tangible longer term returns from helping people get back on their feet, supporting communities, and avoiding the likely higher costs of re-housing and housing benefit support.”

Turning to borrowers, the CML chief made it clear banks wanted to help.

“We don’t want you to be prevented from entering the market on good terms just because you don’t have a huge deposit.

“If you’re already in the market, perhaps with blemished credit, we don’t want to diminish your opportunity to rehabilitate your finances.

Mr Crawshaw also described government plans to help first-time buyers with grants in the Open Market HomeBuy scheme as “inaccessible irrelevance to most first-time buyers”.