The squeeze on the availability of mortgages is expected to continue and get worse in the next three months, the Bank of England has warned.
It also predicted in its quarterly Credit Conditions Survey that demand for home loans was likely to fall slightly during the same period.
The Bank said lenders expected the rate of homeowners defaulting to rise.
The credit crunch has meant that mortgage providers have been far less likely to lend to each other, leading to a cut in the number of mortgages available.
The Council of Mortgage Lenders (CML) has warned that 2.8 million households are due to remortgage this year and next year.
The CML stressed yesterday that this will be ‘significantly higher than in 2007’.
Householders facing renewal are also faced with the possibility of being forced to sell their house as bank and building societies are hiking up interest rates, making it impossible for many to find a new mortgage that they can afford.
At the same time, the high cost of mortgage repayments has seen more home owners taking out personal loans to finance their everyday expenses.
This has seen a record £2bn expansion of credit card debt, bank overdrafts and individual loans, in February alone.
This was the largest overall amount since 1993, with outstanding debt on credit cards soaring by £350m, three times the rise in January.
Meanwhile, the Cooperative Bank became the second major bank to withdraw mortgages to new customers, and Halifax was lining up to do the same as the total number of mortgages on offer fell by 40 per cent over the last month, with 500 packages withdrawn in one day on Wednesday.
• The Unite trade union yesterday called on the government to legislate to protect pension schemes from raids by private equity style companies.
Unite officials met with Pensions Minister, Mike O’Brien to discuss the Pension Corporation takeover of the Telent company.
Unite said it believes the Pension Corporation that owns Telent and employs 2,000 UK workers, bought the telecom services company for £400m to gain control of its £3bn pension plan and in addition, access to the assets of a further pension account worth £520m.
The Pensions Regulator has expressed similar concerns.
Unite said it wants to see changes in the law to stop pension schemes being used as instruments of short term profit-making for private investors.
