Chancellor Alistair Darling has called an emergency meeting with mortgage lenders to discuss ways of bringing a halt to the deepening crisis in the homeloan market.

The meeting, which will take place next week, will try to find common ground between the government and the mortgage industry, which have become increasingly critical of each other as the crisis in the mortgage market has intensified.

At the weekend Prime Minister Gordon Brown accused mortgage lenders of not passing on reductions in the Bank of England base rate to homeowners. The base rate is currently at 5 per cent – yet the average fixed rate mortgage is 6.29 per cent and the average standard variable rate, which borrowers usually revert to when their fixed deal expires, is at 7.18 per cent.

Mr.Brown said: “To create the conditions where banks feed through their interest rate cuts to homeowners and new buyers, we must first rebuild confidence in the banking system and reduce the uncertainty that is currently holding the banks back from lending to each other.”

And Mr. Darling told lenders: "What we are saying to banks is you have got to help people as well. If you can pass on those interest rate reductions, if you can help homeowners, help businesses, that will help all of us get through a very difficult time."

The Council of Mortgage Lenders (CML), which represents banks and building societies, says the onus is not just on lenders to help mortgage borrowers. CML Chairman Steven Crawshaw said: “There is a real and immediate need for broader based action than we have seen to date.”

Tomorrow the Bank of England will inject an additional £15 billion of cash into the money markets – but lenders say this will not be enough to stave off the mortgage funding crisis. Mr.Crawshaw warned that unless additional funds become available, net lending in 2008 could reach only half of last year’s level.

At next week's meeting, it is expected the Chancellor and the CML will discuss measures aimed at broadening the investor base for mortgage-backed securities and improving the robustness of the market.

The CML wants the Government to kick-start the mortgage-backed securities markets, where lenders bundle up their mortgage deals and sell them on to other banks and building societies. Since the credit crunch hit home last summer, these markets have effectively collapsed, as lenders hoard cash because they are concerned about access to future funding.

The CML will also urge the Government to address the “inadequate state support scheme for mortgage borrowers”. It says the Government should do more to help borrowers in serious and short term financial difficulty, in order to help minimise the level of repossessions.

Katie Tucker at broker John Charcol says: “At next week’s meeting, the crucial aim must be to restore confidence between lenders again, so that they can return to the business of lending money to each other at an affordable rate.

“A scheme to help risk-rate the securities lenders can sell on to each other, and third parties, would be a valuable move to stimulate those markets again – but only if the risk rating standards have accountable substance, like a Government-backed guarantee.”

The meeting comes after the Government set up a working party of experts to discuss how to “support borrowers in difficulty”, as mortgage lenders continue to withdraw deals and tighten lending criteria amid the continuing credit crisis.

The working party, which is not due to produce its final report until around November time, has been criticised by the CML for not “addressing the urgency of market difficulties now.”