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The News Line: News 250,000 IN NEGATIVE EQUITY! – as Ryanair announce 10% fleet cut CITIGROUP bank has warned the Bank of England’s Monetary Policy Committee (MPC) against upping interest rates when it meets this week.

It noted that already a quarter of a million UK homeowners are in negative equity.

The US banking giant said house prices had slipped back by seven per cent since the autumn.

The Citigroup chief UK economist Michael Saunders warned that house prices could fall by 15 per cent or more by the end of 2009. Such a drop would leave at least a million homeowners in negative equity.

He said: ‘The signs are that the economy is slowing very sharply, but with inflation shifting up the Bank of England cannot cut rates.

‘The economy’s being hit by these two big shocks: you’ve got the credit crunch and the housing crash; and you’ve got this shock from oil prices.’

With mortgage costs set to rise this week, Saunders stressed that raising rates at this stage would be extremely unwise.

He added: ‘With the economy diving, rising unemployment, falling housing, and the credit crunch, a rate hike could trigger a savage unwinding of the mix of low savings, high debt and elevated house prices.

‘Just as a rate cut could be misinterpreted as a sign that the MPC is inflation-tolerant, such overkill would probably lead to an unnecessarily deep recession.’

Meanwhile, Citigroup’s UK front Citibank UK has announced it is to ‘stop new lending through its Future Mortgages and CitiFinancial portfolios’.

From Wednesday 21 May 2008 the bank stopped offering new loans by Future Mortgages, its intermediary mortgage operation, and its CitiFinancial personal loans business.

The Bank of England will face its big decision this Thursday – what to do about the current five per cent interest rate.

Currently, increased mortgage costs will see £90 a month added to repayments for a typical loan.

Today the Cheshire building society will increase the cost of two of its three fixed-rate mortgages and will add £500 to its mortgage fee.

Last week the Abbey and the Woolwich made their fixed-rate loans dearer.

Lenders are also shutting their doors to borrowers who want to take out mortgages on a cheaper interest-only basis.

On Friday, internet bank Egg stopped offering the loans altogether, citing ‘market conditions’, and Abbey has said it will no longer lend to people who have less than a 50 per cent deposit unless they can prove how they will pay off the capital.

• Bradford & Bingley yesterday announced that its chief per cent executive Stephen Crawshaw is leaving the mortgage bank with immediate effect ‘due to a serious cardiovascular condition’.

He will be replaced by chairman Rod Kent in the short-term.

Crawshaw’s departure comes on the eve of today’s trading update, with reports saying the bank will issue a profit warning.

• Ryanair is expected shortly to announce plans to ground 10 per cent of its fleet during the winter, and a drop in profits because of soaring oil prices.
 
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