To every action there is an equal and opposite reaction

From the FT:

Banks have warned they could be forced to cut back drastically on new mortgage lending because of the government's flagship scheme to offer a state-backed payments holiday for struggling homeowners. Representatives of the biggest mortgage lenders have also made clear they oppose any move by the government to make the scheme compulsory. Its exact terms are still being finalised...

The Council of Mortgage Lenders warned in a submission to the Treasury there could be a big drop in overall mortgage lending as an unintended consequence of the plan. This was because, under Basel 2 banking requirements, lenders have to hold far more capital for mortgages that remain in arrears for an extended term than they do for new loans.

"The scheme will therefore tie up capital that might otherwise be used for new lending," the CML said. The trade body argued that each mortgage in arrears held up capital that could finance 30 or more new home loans...

Sweet. Businesses have to find the right combination of quantity, quality and price. If the government mucks about with one of these variables (in this case, 'quality') then banks will either restrict quantity (which is what they are doing) or increase the price (the interest rate charged), or quite possibly both, despite the government doing its level best to force banks to lend more to recreate those heady days of 2007 when the sky was the limit (oops, new mortgage lending is down 90%) and to cut interest rates (via lunatic BoE base rates cuts, only about half of which have been 'passed on').

There's a bonus at the end of the article:

The government will on Friday begin a separate "mortgage rescue scheme" that will allow vulnerable householders to sell their homes - or parts of them - to housing associations while remaining as tenants.

I can see this going horribly wrong as well.

UPDATE According to The Telegraph, "One borrowers in arrears prevents up to 80 other customers getting a mortgage".