Two years to recover from liquidity crisis

It will take up to two years for the mortgage market to recover from its present troubles, according to the head of the Building Societies Association (BSA).

According to figures from the Bank of England mortgage lending has now fallen to an all time low, down 44 per cent on the previous year during March.

Mortgage lenders have also been withdrawing products and curtailing product ranges.

Both Halifax and Nationwide have cut their maximum loan-to-value ratios to 90 per cent.

Abbey also signalled the end of the 100 per cent mortgage, withdrawing the final product on the market last week.

Speaking on BBC Radio 4's Today programme, BSA chairman Iain Cornish said: "We have seen a seismic shift in wholesale markets. That is obviously now starting to spill over into the wider economy with some slowing down.

"I don't see things getting any worse from here but I do expect it will take 18 months to two years for confidence to return fully and work its way through the system."

The malady has been accompanied by Halifax Bank of Scotland (HBOS) and Royal Bank of Scotland turning to shareholders with rights issues to sure up funding.

In response the Bank of England has put in place a special liquidity scheme, in effect offering £50 billion in loans to the market in order to improve liquidity.

However, it is possible the mortgage industry issues will not spread into the wider economy.

"What I don’t expect is a major recession because I think we are protected from that by what is still a resilient jobs market and what are relatively low interest rates, which are set to fall further," said Mr Cornish.

The base rate of interest is presently at fiver per cent, with a decision on the future direction from the monetary policy committee (MPC) expected later today.

Chris O'Toole