Mortgage lenders piled pressure on the Treasury yesterday to assist Britain's ailing housing market, by calling for the Government to help to fund new home loans.

The Council of Mortgage Lenders (CML), whose members provide more than £1,000 billion in home loans, released a private submission that it had made to a Treasury-sponsored review of financing for property purchases.

Lenders were infuriated by reports that Sir James Crosby, the former HBOS chairman who is leading the review, will not offer solutions on how to reinvigorate the mortgage market when he tables his initial findings next week. The full report is due in the autumn.

The CML wants the Treasury to push ahead with a plan that it claims would reopen the market in residential mortgage-backed securities (RMBS) and covered bonds that closed down with the credit crunch.

RMBS are bonds backed by mortgage payments that banks sell to other investors, freeing up capital and allowing the banks to write new mortgage business. The credit crunch has severely curtailed this market.

Michael Coogan, director-general of the CML, demanded speedy action to break the logjam in the mortgage market. “A year into the credit crunch, there is no merit at all in waiting until the autumn,” he said.

Under the CML's plan, lenders would securitise high-quality new mortgages and sell the securities to investors such as other banks and fund managers. However, the buyers would then have the opportunity to use the securities as collateral on loans from the Bank of England.

This facility would sit alongside the Bank's £50 billion special liquidity scheme (SLS), which allows banks to swap old mortgages for Treasury bills that can be used as collateral on interbank loans.

The SLS has not loosened up the mortgage market as the Treasury had hoped, with figures from the Royal Institution of Chartered Surveyors yesterday showing that the number of homes changing hands had slumped to the lowest level for at least 30 years.

Banks are hoarding cash because they are nervous about the economic environment and the potential losses that their peers may hold with investments in high-risk mortgage-backed securities. As a result, mortgage lending has shrunk dramatically.

The CML said that its plan would return confidence to the mortgage securitisation market. It is supported by the Home Builders Federation.

Stewart Baseley, executive chairman of the federation, said: “Crosby's remit is to look at the market in the medium and long terms, but waiting to act until November or December to take action is no longer an option as the implications for the economy of the housing market downturn start to become painfully clear.”

The Bank is thought to fear that assisting new mortgage sales could encourage irresponsible lending.

Sir James was commissioned in April to “consider options for improving the mortgage-backed securities market, including measures aimed at broadening the investor base for mortgage-backed securities and improving the robustness of the market”.