You might not get a mortgage, Bank chief warns the first-time buyers

The bleak assessment came from senior economist Kate Barker, who sits on the Bank of England committee that sets interest rates.

Her warning came as the heads of Britain's biggest banks met Bank of England Governor Mervyn King today amid the City's worsening crisis.

In a speech in Chelmsford Ms Barker said: "We may see prices fall this year, but because of credit conditions, affordability will probably not improve at all. Finding deposits has become more difficult because of the credit crunch this week. Young households face difficulties.''

Major lenders have been asking for bigger deposits and have been raising mortgage rates for "riskier" borrowers because of the turmoil in the wholesale money markets.

The speech came after a traumatic day on the stock market when rumours of difficulties at HBOS, the owner of the Halifax group and Britain's biggest mortgage lender, sent its share price tumbling by 20 per cent. Today the FTSE 100 Index was trading down 45.6 points at 5500.6 following another big slide on Wall Street. Authorities will be desperately hoping for a calmer day on what is normally a quiet trading session before the Easter break. Yesterday dealing rooms were gripped by near-hysteria, forcing the Bank of England and City watchdog the Financial Services Authority to step in and deny the "unfounded" rumours about HBOS.

The FSA blamed them on unscrupulous traders seeking to make millions by selling shares they did not own, then deliberately spreading lies that HBOS was running out of money to force the share price lower - an abuse of the practice known as short selling. It said it would hunt down traders guilty of the illegal "trash and cash" attacks.

There was still confusion today over how the rumour began. One claim was that an email was circulated falsely alleging that a newspaper would publish a story raising the spectre of a run on HBOS. But most traders said a mobile call was the most likely source.

The Bank pumped an extra £5 billion of loans into the system through which banks lend to each other today but some analysts warned it was not enough to fix tensions. The aim of the funding is to push the interest rates banks charge each other down closer to the official base rate of 5.25 per cent.

A spokesman for the Bank of England said today's meeting was scheduled last week and is not in response to any event.