Mortgage lenders in funds warning

CML chairman Steven Crawshaw said home loans could fall to half last year's £108 billion as banks and building societies struggle with more expensive funding following the credit crunch.

Mr Crawshaw, who is chief executive of Bradford & Bingley, said: "Potential borrowing still significantly exceeds the industry's collective capacity to supply funds.

"It is therefore a real possibility, looking forward from today, that net lending in 2008 could reach only half last year's level unless additional funds become available."

A host of lenders have withdrawn mortgage deals in the past two weeks, with several hiking costs on fixed-rate deals.

Mr Crawshaw urged Bank of England Governor Mervyn King to "show leadership", saying there was a "real and immediate need for broader based action than we have seen to date".

Central banks across the world - including the Bank of England - have attempted to combat the credit squeeze by pumping billions into frozen money markets with little success.

The CML chairman said longer and deeper funding facilities from the Bank were needed because lenders concerned over their ability to access future funding were managing their business pipelines "very cautiously".

He added: "Without attracting new funding sources, we will see an ongoing process of attrition in mortgage choice, possibly over a protracted period, with lenders managing down demand by tightening lending criteria, increasing price, or withdrawing more products from the market altogether."

The credit crunch erupted last summer in a global crisis of confidence over mortgage-backed investments following spiralling defaults among high-risk borrowers in the US.