Money Central: how to survive a property downturn

An unprecedented £50 billion injection to bail out Britain’s ailing banking system could be doubled if it fails to stave off a collapse in the housing market.

Alistair Darling, the Chancellor, will tell MPs today that the Bank of England is to allow lenders to swap assets for government-backed bonds in an attempt to restore confidence and ease the effects of the credit crunch.

The initial offer is for £50 billion of bonds, but senior Treasury sources told The Times yesterday that further cash injections up to a total of £100 billion were possible.

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However, they admit that there is no guarantee that the bailout will lead to banks offering cheaper mortgage deals.

Mr Darling is also braced for a dispute over whether the bonds should be counted as government debt.

British banks, uncertain which institution has lost what, have hoarded cash reserves to protect their own positions.

Mr Darling said that the latest move was intended to “ease” the market.

“We believe that this will be an essential step in trying to get the financial market stabilised. That in turn will help the mortgage market too,” the Chancellor said.

However, he gave warning that in return he expected that the banks would “begin now to disclose the extent of their losses and explain how they are going to rebuild their capital”.

Under the terms of today’s announcement, banks will be allowed to swap hard-to-trade mortgage-backed securities linked to their previous lending for specially issued Treasury bills.

Mr Darling is expected to press for mortgage lenders to ease lending conditions, especially for first-time buyers, when he meets them tomorrow.