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The government's aim of returning mortgage lending to 2007 levels is unrealistic, the Council of Mortgage Lenders (CML) has warned.

As a condition of recapitalising the banks, the government has urged lenders to return to pre-credit crunch lending.

However, in a speech to the CML's annual conference, the director general Michael Coogan said mortgage lending next year may be lower than at the end of the last recession in 1995, when net lending fell to £15 billion.

"A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession, and reflecting on the figures I mentioned from the 1990s, this would be a real challenge."

Mr Coogan said he would not disagree with Sir James Crosby's warning that unless there is government intervention in the mortgage market, net lending is likely to fall below zero.

Mr Coogan backed Sir James's recommendation that the government guarantee securitisations to encourage lenders to return to the market but added action must be taken before the Budget next year, or it will become "another missed opportunity".

In addition, Mr Coogan criticised the government for putting pressure on banks to lower their rates of interest. Mr Coogan said: "As base rates fall and if savings rates follow, savers could be less inclined to keep their money invested which would reduce, substantially, the pot of available funds to re-lend out to mortgage customers next year."

In order to help people who stand to lose their home as they can no longer afford their mortgage, Mr Coogan suggested a government-backed scheme of sale and lease back.

The Financial Services Authority (FSA) has stressed the importance of assisting homeowners who are struggling with their payments.

The FSA's retail markets managing director, Jon Pain, told delegates at the conference: "It is particularly important that you focus on the fair treatment of your customers when they go into arrears.

"We want each lender to look at their internal arrears policy to ensure it aligns with the mortgage rules and treating customers fairly."