More than a million home owners will fall into negative equity as the housing market slump intensifies, the Bank of England says today.

It predicts that one in 10 mortgage holders – 1.2million people – is likely to be trapped in a home worth less than the loan they took out to pay for it.

About 500,000 home owners are already in negative equity after a drop in house prices of almost 15% from last summer’s peak, the Bank’s figures indicate.

An identical fall in prices would push another 700,000 of Britain’s 11.7 million mortgage holders into negative territory, it says.

The warning, in the Bank’s twice yearly Financial Stability Report, underlines predictions from City experts that Britain is facing a recession that could be as bad, or worse, than the early 1990s. It illustrates how the effects of the financial crisis are spreading ever wider into the real economy.

The financial crisis is now the worst Britain has faced since the start of the First World War, says the report, with losses throughout Europe and the US amounting to just under £1,900bn.

Daily Telegraph