“Will it work?” are the words on everyone’s lips in response to the £50bn lifeline thrown to UK banks yesterday by the Bank of  England.

The scheme, designed to alleviate the log jam in the money markets, will involve the Bank of England swapping around £60bn of banks’ mortgage liablities for nine month Treasury bills worth around £50bn, rising to £100bn in the coming months.
While we have seen nothing like this since the secondary banking crisis in the 1970s and the support is likely to remain in place for three  years, the scheme is limited in scope.

 It will only apply to mortgages, loans and credit card debt issued before the end of December 2007 as the BoE clearly doesn’t want to encourage new lending.

In addition, all these loans will have to be converted into AAA-rated securities before they can be swapped for Treasury paper.

But will this support scheme do the trick and will hard pressed homeowners feel any benefit any time soon?

I very much doubt it. Even though Abbey today announced that it is shaving 0.1 per cent off its two year tracker and flexible mortgages from 30 April, this is a drop in the ocean compared to the scale of the problems facing mortgage lenders - on both residential and commercial mortgages.

Last week I heard a property lawyer, who works for some of the major high street lenders and property companies, say: ”You ain’t seen nothing yet. Property companies  and residental mortgage lenders are in serious trouble.  It’s not just mortgage arrears, but fraud and tenants defaulting on rents. ”

One high street lender had taken a £880m hit due to mortgage fraud, he said, which if true, is likely to grow.  It is only when repossessed properties are sold at auction that the full scale of over-valued property (due to developers, solicitors and valuers working  in collusion), becomes apparent. 

“It’s all going to get a lot worse. This is just the end of the beginning, not the beginning of the end,” he said.

However, a spokeswoman for Abbey vigourously rejected the suggestion that any one lender had lost £880m due to mortgage fraud, saying that the Association of Police Officers estimated that the figure for the entire industry was around £600m.  Even that figure had been disputed by the British Bankers Association, she said. 

In the meantime, the Council of Mortgage Lenders will be pleading with the Chancellor of the Exchequer, Alistair Darling, today for more help for homeowners in mortgage arrears and facing repossession.

Currently state benefits don’t kick in until nine months’ of arrears have built up and only on the interest element of mortgages of up to £100,000.

After yesterday’s £50bn bail out of the banks and Labour MPs clamouring for the reinstatement of the 10 per cent tax band, the chances of the Government increasing state benefits for distressed homeowners right now are absolutely zero.