The Government was today told that the mortgage freeze crippling the housing market will last another two years.

A report by Sir James Crosby, the former chairman of Halifax owner HBOS, has found the chronic shortage of mortgages for homeowners and those looking to buy will continue into 2009 and 2010.

Mortgages have dried up since the onset of the credit crunch last year as banks and building societies struggle to get hold of funding. It has led to a sharp fall in house sales and prices as only the least risky customers obtain loans.

There is no quick fix to the problem, according to Sir James, who has been asked by the Treasury to lead a review into improving wholesale mortgage funding to free-up the market. The Crosby Review will give its final recommendations on how to improve the situation in the autumn.

But the Council of Mortgage Lenders has told ministers they must "act quickly" to resolve the situation.

It warned thst mortgage lending is set to halve this year and devastate the property market and housebuilding sector.

The Chancellor, Alistair Darling, is thought to be considering a £40 billion package to back new mortgages in a bid to ease the log-jam. He may offer to swap new mortgages for Governmentbacked bonds to encourage lenders to open up the market.

It is hoped such a scheme would push down the cost of mortgages for borrowers and make them more available, particularly for first-time buyers who have all but been excluded from the housing market by demands for big deposits and high rates of interest.

Mortgage lending has crashed to historic lows in recent months while prices, which are already on the slide, are expected to continue falling until home loans are again made readily available.