Credit crunch 'could last 18 months'

The credit crunch could last another 18 months, the head of Britain's largest mortgage provider has said.

Andy Hornby, chief executive of HBOS said house prices were not likely to rise again until 2010 while lenders waited "to give the confidence back into the system for banks to start lending again".

Mr Hornby - whose bank owns the Halifax and Bank of Scotland - said British banks would continue to suffer major problems in offering loans until they could once again raise significant sums on wholesale financial markets.

The HBOS chief said that US money-market investors would not resume channelling of money to UK banks for mortgage-lending until US house prices started to recover - a process he said was set to last well into 2010.

Mr Hornby said: "My personal view, for what it's worth, is that it will take 18 months to play through the system.

"There is no doubt that the next 18 months are going to see a considerable slowdown in GDP and we are looking at a period when we are seeing house price deflation which is stronger than the early 1990s," he said.

"To balance that.., I don't believe unemployment levels are going to get as high as they peaked in the early 1990s. That's going to be the very important underpin in terms of people being able to keep paying mortgages etc.

"There's no doubt that we are looking at 18 months from now before we can expect to see significant improvement in the market."

However, Mr Hornby said he was confident that the market would recover in the longer term once US house prices started rising again, though he made clear he did not expect growth to return to the high rates seen in recent years.

© Independent Television News Limited 2008. All rights reserved.

Post to Fark Post to del.icio.us Digg this story Post to reddit Post to Facebook Post to StumbleUpon Seed Newsvine Post to GNN Post to MySpace