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Britain’s mortgage lenders face a £30 billion funding shortfall next year if the Bank of England does not step in to ease the credit squeeze, the industry’s lobby group said yesterday.

As much as a third of the £90 billion required to finance the demand for mortgage loans expected next year will need to come from money markets that effectively have been closed since August, the Council of Mortgage Lenders (CML) said.

But as the CML pleaded with the Bank to intervene to prevent a severe contraction in the availability of mortgages, banks were told to get their own house in order by the City’s regulator.

The Financial Services Authority (FSA) said that lending conditions could get worse and that lenders should forgo profits to protect themselves against a collapse in liquidity of the sort that crippled Northern Rock.

The stark warnings, presented yesterday at the CML’s annual conference in London, come at a time of deepening gloom over Britain’s mortgage market.

New loans for house purchase are down by 31 per cent over the past year and all big surveys have shown house prices falling in recent months.

A credit card provider has denied it is introducing a charge “by stealth”.Nat West credit card holders who opted to join its new rewards scheme are now being billed £3 a month, unless they spend £1000 a month on the card.

Some customers claim the bank gave inadequate warning and is introducing the charge at Christmas when people may not notice.

Nat West says full details were in the written terms people got before registering to join last summer.

Scheme replaced Airmiles

RBS/Nat West group is the second largest UK credit card provider and introduced the Your Points reward scheme last June.

It replaced Airmiles, with Nat West claiming Your Points would be more flexible to customers’ needs.

Your Points allows points accumulated each time a purchase in made using the card, to be exchanged for budget airline flights and holidays.

Cardholders were encouraged to phone up and register to join, but now some lower spending people have complained to BBC’s Money Box, that there was no warning about the charge over the telephone at registration time, and say they feel disappointed and misled.

They have just received leaflets telling them that from 1 December, people who do not spent £1000 a month on their card, will see a £3 a month charge automatically added to their card bill.

That Britain is slipping into a personal debt crisis has been well documented for a number of years now.

The UK’s burgeoning levels of personal debt have, for a long time, far outweighed that of our European neighbours.  Indeed, figures released last year revealed that the average consumer in this county is £3,008 in debt compared to an average figure of £1,558 across the rest of Western Europe.

Alarmingly the UK is now responsible for a third of all unsecured debt in Western Europe. 

It’s a precarious state of affairs borne out by the current figures for personal debt in the UK: The total figure for personal debt in Britain in June 2007 was £1,355bn with the growth rate increasing to 10.1% for the previous 12 months; it would appear that this is not an issue that shows any sign of slowing down.

Including mortgages the average household debt for the UK is £56,000, excluding mortgages the figure is £8,856 and if based on households with some form of unsecured loan the average figure is £20,600.

Every four minutes this country’s personal debt is rising by a million pounds.

People living in flood risk areas could soon face unaffordable home insurance costs, warns a new industry report.

A poll of 200 insurance professionals reveals 90 per cent expect insurance costs to rise for flood danger zones unless spending on defences is upped.

Currently 2.2 million UK properties are in flood risk areas.

The research by Computer Sciences Corporation (CSC) also reveals 61 per cent of those in the insurance industry expect competition to push up prices for homes in flood affected areas – as the practice of safe areas subsidising at-risk regions is dropped.

Price pressures have come from the increasing numbers of price comparison sites, explained John Maitz, vice president at CSC, which should lead to firms looking at individual homes’ risks and not the whole market.

“For households on flood plains these developments augur very poorly indeed,” he told Reuters.

This summer’s floods cost over £3 billion with 130,000 claims, including 100,000 home insurance and 10,000 motor insurance claims, figures from the Association of British Insurers (ABI) reveal.

The ABI is now calling on the government to increase its flood defence spending.

“The insurance industry is helping tens of thousands of people affected by flooding this summer, but the government has now failed to play its part,” said Stephen Haddrill, the director general of the ABI.

“Millions of homeowners and businesses around the country have been let down by the government’s failure to commit sufficient money to new and improved flood defences.”

As the crunch goes on, lenders are rejecting applications - and mysteriously dragging their feet over some sub-prime loans.

Banks and building societies are set to tighten their belts further in the wake of the global credit crunch, making it increasingly difficult for borrowers to be approved for mortgages, loans and credit cards.

A series of reports last week suggest that financial institutions will feel the squeeze on their balance sheets well into next year - a squeeze more prolonged and more damaging than had previously been thought.

Over the past month, mortgage lenders have withdrawn 40 per cent of their sub-prime mortgages - loans made to borrowers with poor credit histories - and 16 per cent of their standard home loans.

Many of those standard loans were aimed primarily at first-time buyers who were stretching their finances to afford a home.

A rise in the number of fraudulent insurance claims in the UK is costing the industry an estimated £1.6bn a year and pushing up the price of cover for honest policyholders.

The Association of British Insurers (ABI) said that, between March 2006 and March 2007, one in every 11 claims was in some way fraudulent, reports The Guardian. Insurers uncovered dishonest claims worth £1.3m a day – three times the figure in 2003 – but the ABI said it believed false claims worth an additional £1.6bn were going undetected each year.

Insurance fraud was adding about 5%, or £40 a year, to premiums paid by honest policyholders. However, Nick Starling, director of General Insurance and Health at the ABI, said the industry was getting better at detecting fraud.

Plans to help borrowers secure more affordable rates for long-term fixed-rate mortgages, announced in Alistair Darling’s pre-Budget proposals, are unlikely to increase demand significantly, experts say.

“Mortgages of up to 25 years have been available for some time but are not very popular, as they are obviously not a very flexible contract to be in,” said Richard Farr, director of the Association of Mortgage Intermediaries.

“They have little impact on helping people on to the property ladder, as they do not address issues of affordability.”

In the past few months Halifax, Nationwide, Norwich and Peterborough and Yorkshire building societies have all launched 25-year fixed-rate mortgages but long-term deals still make up only a fraction of mortgages brokered.

Fixed-rate deals offer borrowers a guaranteed rate of interest for a set period of time with two-year fixed rates currently the most popular product on offer on the market. Long-term fixed rates, by comparison, are higher than those offered for short-term deals in order to reflect the increased risk taken on by the lender but advisers say that this is not the only reason they are unpopular.

Many borrowers, they say, find it difficult to make plans that exceed a few years and are, therefore, unwilling to tie themselves to long-term deals that penalise them for altering their arrangements.

“The government seems to be focusing on supply and ways to make it easier for lenders to offer long-term products,” said James Cotton, mortgage specialist at London & Country Mortgages. “But the industry should be looking at demand. Offering more products is not going to solve the problem.”

Fitch Ratings said its outlook for the UK life insurance sector remains stable as problems persist in spite of strong capitalisation and record new business volumes.But the rating agency said it welcomes the strong new business growth since the UK pension reforms in 2006.

Nonetheless, the ratings agency said it is concerned that this one-off expansion masks high lapse rates that are, in general, not clearly disclosed.

Fitch said for many of the new policies sold, existing policies have been terminated, as policyholders simply switch money from old to new policies.

The UK Financial Services Authority proposed a further shake-up of life insurance distribution in a discussion paper published in June 2007.

This, together with the introduction of US-style variable annuity products, may lead to significant changes for the UK market in 2008 and beyond, the ratings agency said.

On the impact of the volatility in the credit and equity markets in the wake of US sub-prime woes, Fitch said the volatility does not currently appear significant enough to put material pressure on its UK insurance ratings.

The second quarter of 2007 saw a continuation of the UK consumer credit market’s poor performance, a trend that began in 2005. In particular, high levels of consumer debt and a lack of consumer confidence hampered new business levels. Moreover, interest rates remained high.The majority of product lines struggled in the second quarter of 2007. This is particularly true of unsecured personal loans, which have performed poorly since mid-2004. The credit card segment continued to see a weak performance, but Q2 2007 was stronger than Q1 2007. On the other hand, overdrafts put in another strong performance.

Lending will be affected in the short term as a result of the global credit crunch. Indeed, in response to the crunch and a lack of funds on the money markets at low rates, lenders are beginning to raise their prices. Moreover, many lenders will implement stricter criteria and reduce exposure to the sub-prime and non-standard sectors.

Banks and building societies have withdrawn 40 per cent of their mortgage deals over the past three months, as the credit crunch takes its toll on people trying to buy a home.

It is the latest sign that lenders are tightening their loan offers in an attempt to recover lost profits following the turmoil in the financial markets.

In total, 5,511 different home loans have been withdrawn since July this year, as many banks and building societies have struggled to borrow money in the wholesale markets.

This has increased their costs - which they pass on to their customers, by withdrawing their best deals or raising rates.

According to independent statisticians Moneyfacts.co.uk, the fall in the number of products on offer is steepest in the subprime sector, as banks and building societies have stopped offering home loans to people with poor credit histories.

But it said the mainstream lending market had not escaped the cull as lenders took a more cautious approach across the board.

Melanie Bien, from mortgage broker Savills Private Finance, said: “It’s not just a problem with subprime or buy-to-let any more. It is beginning to filter through to the mainstream market.

“There is just less choice out there. And with less choice it is tougher for people to find a loan.”

The research from Moneyfacts.co.uk comes just a few days after website MoneyExpert highlighted that one in three home buyers had been rejected for a mortgage in the past six months - a sharp increase on the year before.

The mainstream mortgage market has seen a 16 per cent drop in the number of products available, which Moneyfacts said was unusual in a historically static market.