THE Bank of England may be forced to cut its main interest rate this week as the credit squeeze spreads to the mortgage market, exacerbating the worst housing downturn since the last recession in 1991.
HSBC Holdings Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc are raising loan rates or withdrawing their best offers in order to shore up balance sheets. That's dulling the impact of the central bank's two rate cuts since December and making it harder for policy makers to protect the economy.
"This is a panic," said Nigel Welch, 54, director of mortgage broker TS Mackenzie in London's fashionable Islington neighborhood. "Mortgages are more expensive and harder to get. I've had to turn away some people that I know won't find the loan that they need."
The mortgage market has tightened this month as banks scramble to conserve cash and stem a credit binge that fueled the country's decade-long housing boom. The number of home-loan products on offer declined by 21 percent in the past two weeks to 4,499 on April 4, says Moneyfacts Group, a financial Website.
Worsening credit conditions spurred economists at Deutsche Bank AG and Bank of America to change their forecast last week and predict the Bank of England will take action on April 10.
Forty-nine of 61 analysts surveyed by Bloomberg News predict policy makers will cut their benchmark rate by a quarter point to 5 percent this week. That would still be the highest among the Group of Seven nations and compare with the Federal Reserve's main rate of 2.25 percent and the European Central Bank's 4 percent.
The cost of borrowing pounds for three months was at 5.98 percent on April 4 after reaching 6.01 percent last week.
More expensive mortgages are increasing the burden on consumers already shouldering a record 1.4 trillion pounds (US$2.8 trillion) in personal debt.