Thursday evening business bulletin

Apr 17 2008 By Andrew Mernin

The share rally in Britain’s beleaguered banking sector continued apace today on talk that a Government plan to free-up wholesale money markets could be unveiled as early as next week.

Banks raced ahead with a second day of strong gains amid hopes of a Treasury-backed solution to their funding crisis.

The mood among investors was also buoyed after investment guru Mark Mobius of Templeton Asset Management forecast that the credit crisis was ``near the end".

Mortgage bank Alliance & Leicester was up 3% as the sector’s rally continued apace, with fellow lending giant Halifax Bank of Scotland gaining 2%.

Barclays and NatWest parent Royal Bank of Scotland also moved higher, up 1% each.

News of more hefty write-downs at US investment banking major Merrill Lynch failed to derail the sector’s progress.

The bank said it would cut 4,000 jobs after taking a fresh £3bn hit from the credit squeeze and collapse of America’s sub-prime mortgage market.

Up to one in 10 families could be plunged into negative equity if house prices fall by 15%, an investment bank warned today.

Economists at Morgan Stanley are predicting house price falls of up to 10% this year, followed by a further drop of 5% in 2008.

In a report on the UK housing market, they warned that if these falls materialised, 10% of mortgages would be for a higher sum than the value of the property they were taken out on, meaning homeowners would be in negative equity.

The research added that the situation could be even more severe, with house prices falling by 25% during the coming two years under its most pessimistic forecast.

The group said that, during the past few years, nearly half of all lending for house purchase had been at loan to value (LTVs) ratios of 80% or higher.

The UK’s biggest housebuilder today warned of worsening market conditions as buyers are squeezed out by dearer mortgage deals.

Taylor Wimpey said orders since January were 26% below last year, with trading falling off since March’s full-year results as investors and first-time buyers face particular difficulties.

The group, which sells homes under brands including George Wimpey and Bryant Homes, said: ``We anticipate that the current subdued conditions will continue, with interest rates and mortgage availability being key determinants of customer confidence."

Shares in the group fell more than 4% as the company also braced investors for profits at the ``lower end" of expectations this year.

The pound at 4:30pm was US$1.9879 compared to US$1.9741 at the previous close while the euro at 4:30pm was £0.8006 compared to £0.8083 at the previous close.