The Bank of England has finally unveiled the bucket with which some had hoped it would bail out the mortgage market. It is small, expensive and full of holes.

That, of course, is deliberate. The Bank does not want to bail out the banks. It does not even want to bail out the mortgage market (politically convenient though that might be).

The idea is not to return to the “excessive” lending of a year ago, says Mervyn King.

Quite right, too. The housing market needs to adjust and propping up mortgage lending will only delay the pain.

The banks all greeted the package enthusiasically, with Barclays becoming the first to pledge to use it. The scheme will provide at least some support to the inter-bank lending market, which should, in turn, improve the supply of credit both to consumers and to companies.

Whether it will have much impact on the price of that credit remains to be seen. The terms on which the banks will be able to swap their hard-to-sell assets for liquid government debt are rather more onerous than expected. Even the optimists say that it will take some time for the new funding to be reflected in the market. Three-month sterling Libor, the rate at which banks lend to each other, barely moved yesterday. And it is still almost one percentage point above the base rate.

It is fair to point out that had the scheme been put in place last summer, Northern Rock would not have collapsed. But at least the Bank has shown that now it is prepared to take radical action to protect the economy from the banks’ problems. If it does not work, the assumption is that the Bank will try something else and its new determination has had a significant impact on confidence.

Yet back in the mortgage market, the best that can be expected in the short term is that the new scheme might cap rate rises. With beautiful timing, Abbey raised many of its lending rates yesterday.

Although there is no ceiling on the new facility, the likely extent of the Bank’s lending is relatively small compared with the banks’ wholesale funding needs. Nor does the new scheme do anything for small building societies which are not eligible.

Capital Economics, admittedly always gloomy about house prices, took one look at the Bank’s scheme and got gloomier still. Now it is predicting that average prices will fall 20 per cent from last year’s peak. This is not what the Government wants to hear, but it makes it all the more extraordinary that some politicians are talking about the need to provide more help for first-time buyers.

To encourage first-time buyers two years ago was irresponsible. To do so now seems downright criminal.

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