Mortgages to 'dry up' as Treasury reveals house prices will plummet by a quarter next year
Mortgage lending could dry up completely next year leaving no-one able to afford to buy a new home, according to a devastating report.
In a huge blow to Alistair Darling's plans for keeping Britain in tact through a crippling recession, experts predict banks could stop giving any loans to aspiring homeowners.
Former HBOS chief Sir James Crosby believes net lending will drop to below zero for the first time on record as people pay more money back to banks than they take out.
The freeze on new loans will see house prices collapse by a quarter next year, according to the small print of Mr Darling's own Pre-Budget Report.
It means the suffering of the vital mortage and housing sectors is likely to be extended and could tear apart the Chancellor's mini-Budget aimed at keeping the UK afloat.
The Government also announced £15 million of new funding for debt advice in today's Pre-Budget Report
Collapse: The Treasury has warned house prices are set to plummet by 25 per cent next year
Bank of England governor Mervyn King today hinted at a further rates cut next month, which would ease mortgage rates as long as lenders pass it on.
'We will take whatever action we feel is necessary on interest rates to steer the economy back into calmer waters,' he told the Treasury Select Committee.
But the Crosby report on mortgage financing still makes chilling reading for the Chancellor and Gordon Brown.
In Mr Darling's Pre-Budget Report yesterday, they effectively gambled on the economy recovering sufficiently by 2010 to cope with tax rises on middle and high earners.
Sir James's study, however, anticipates lending will freeze next year and that homeowners will only be re-mortgaging their properties in a bid to survive.
'I believe that new net mortgage lending is likely to fall below zero in 2009, with only a modest recovery likely in 2010,' he said.
Analysts warned this made it unlikely that the crucial housing market will be bouncing back strongly just 12 months on.
Ray Boulger, of mortgage brokers John Charcol, said: 'It means the recovery in the market is going to be delayed. For the banking sector to see a recovery and begin lending again, the property market must stabilize.'
Britain's Governor of the Bank of England Mervyn King today
Britain's Governor of the Bank of England Mervyn King today
Mortgage lending has already dropped by more than half in the past year, new official figures revealed today.
It fell again last month after a slight bounce in September, according to the British Bankers' Association.
Net lending - which does not include redemptions and repayments - was £2.9billion in October compared to £4.73billion this time last year.
This is the second lowest sum recorded since April 2001.
The number of mortgages approved for house purchase also fell to 21,584, after rebounding slightly from August's record low during September.
Mr Darling has already tried to help the property market with a one-year stamp duty holiday on homes worth less than £175,000.
He told MPs yesterday that he wanted to take steps to improve the supply of mortgages, avoid repossessions and increase the number of new homes.
Ministers would continue to work on Sir James's main recommendation for a temporary Government guarantee on securities backed by new mortgages, he said.
Under his plans, a new body - the Lending Panel - will monitor lending to homeowners and businesses.
Banks have also agreed to wait at least three months if a borrower falls into arrears before initiating proceedings.
'This will give homeowners time to work with lenders to find a solution,' Mr Darling said.
He said £15 million would be made available to provide free debt advice to everyone, regardless of circumstances.
The upper limit for mortgage interest support for those who had lost their jobs will rise to up to £200,000 and the mortgage rescue scheme was being extended to help more vulnerable homeowners - in a package worth £200 million.
Buy-to-let firm Paragon today urged ministers to press ahead with measures to kick-start frozen credit markets and boost mortgage lending.
Crosby's chief recommendation was Government guarantees for the mortgage-backed bonds used by lenders to raise funds, in order to boost confidence.
Paragon saw its funding costs soar following the onset of the credit crunch, and slashed its new lending by 75 per cent to £1.13 billion in the year to September 30.
Chief executive Nigel Terrington called Sir James's recommendation the 'single most important measure' announced by Mr Darling.
'Pre-credit crunch, 80 per cent of net lending was coming from capital markets.
'It is absolutely fundamental to get this market going...for the mortgage industry in the UK as a whole,' he said.
But he also warned the timing of any major recovery in Paragon's lending volumes was 'uncertain' as credit market turmoil persists.
The group's pre-tax profits tumbled 41 per cent to £53.7 million over the year.
The firm warned: 'It is unlikely that credit markets will recover in the near future, thereby making the timing of our return to new lending in scale uncertain.'
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AtW's comment: too busy working to add comments to the article and use bold highlighting
Mortgage lending could dry up completely next year leaving no-one able to afford to buy a new home, according to a devastating report.
In a huge blow to Alistair Darling's plans for keeping Britain in tact through a crippling recession, experts predict banks could stop giving any loans to aspiring homeowners.
Former HBOS chief Sir James Crosby believes net lending will drop to below zero for the first time on record as people pay more money back to banks than they take out.
The freeze on new loans will see house prices collapse by a quarter next year, according to the small print of Mr Darling's own Pre-Budget Report.
It means the suffering of the vital mortage and housing sectors is likely to be extended and could tear apart the Chancellor's mini-Budget aimed at keeping the UK afloat.
The Government also announced £15 million of new funding for debt advice in today's Pre-Budget Report
Collapse: The Treasury has warned house prices are set to plummet by 25 per cent next year
Bank of England governor Mervyn King today hinted at a further rates cut next month, which would ease mortgage rates as long as lenders pass it on.
'We will take whatever action we feel is necessary on interest rates to steer the economy back into calmer waters,' he told the Treasury Select Committee.
But the Crosby report on mortgage financing still makes chilling reading for the Chancellor and Gordon Brown.
In Mr Darling's Pre-Budget Report yesterday, they effectively gambled on the economy recovering sufficiently by 2010 to cope with tax rises on middle and high earners.
Sir James's study, however, anticipates lending will freeze next year and that homeowners will only be re-mortgaging their properties in a bid to survive.
'I believe that new net mortgage lending is likely to fall below zero in 2009, with only a modest recovery likely in 2010,' he said.
Analysts warned this made it unlikely that the crucial housing market will be bouncing back strongly just 12 months on.
Ray Boulger, of mortgage brokers John Charcol, said: 'It means the recovery in the market is going to be delayed. For the banking sector to see a recovery and begin lending again, the property market must stabilize.'
Britain's Governor of the Bank of England Mervyn King today
Britain's Governor of the Bank of England Mervyn King today
Mortgage lending has already dropped by more than half in the past year, new official figures revealed today.
It fell again last month after a slight bounce in September, according to the British Bankers' Association.
Net lending - which does not include redemptions and repayments - was £2.9billion in October compared to £4.73billion this time last year.
This is the second lowest sum recorded since April 2001.
The number of mortgages approved for house purchase also fell to 21,584, after rebounding slightly from August's record low during September.
Mr Darling has already tried to help the property market with a one-year stamp duty holiday on homes worth less than £175,000.
He told MPs yesterday that he wanted to take steps to improve the supply of mortgages, avoid repossessions and increase the number of new homes.
Ministers would continue to work on Sir James's main recommendation for a temporary Government guarantee on securities backed by new mortgages, he said.
Under his plans, a new body - the Lending Panel - will monitor lending to homeowners and businesses.
Banks have also agreed to wait at least three months if a borrower falls into arrears before initiating proceedings.
'This will give homeowners time to work with lenders to find a solution,' Mr Darling said.
He said £15 million would be made available to provide free debt advice to everyone, regardless of circumstances.
The upper limit for mortgage interest support for those who had lost their jobs will rise to up to £200,000 and the mortgage rescue scheme was being extended to help more vulnerable homeowners - in a package worth £200 million.
Buy-to-let firm Paragon today urged ministers to press ahead with measures to kick-start frozen credit markets and boost mortgage lending.
Crosby's chief recommendation was Government guarantees for the mortgage-backed bonds used by lenders to raise funds, in order to boost confidence.
Paragon saw its funding costs soar following the onset of the credit crunch, and slashed its new lending by 75 per cent to £1.13 billion in the year to September 30.
Chief executive Nigel Terrington called Sir James's recommendation the 'single most important measure' announced by Mr Darling.
'Pre-credit crunch, 80 per cent of net lending was coming from capital markets.
'It is absolutely fundamental to get this market going...for the mortgage industry in the UK as a whole,' he said.
But he also warned the timing of any major recovery in Paragon's lending volumes was 'uncertain' as credit market turmoil persists.
The group's pre-tax profits tumbled 41 per cent to £53.7 million over the year.
The firm warned: 'It is unlikely that credit markets will recover in the near future, thereby making the timing of our return to new lending in scale uncertain.'
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AtW's comment: too busy working to add comments to the article and use bold highlighting
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