The Bank of England is close to agreeing a plan designed to ease the mortgage funding drought. The Times

It is understood that the Treasury about to finalise a scheme under which the Bank would allow lenders to swap their mortgage-backed assets for government bonds rather than cash. Lenders would be able to use the gilts as collateral for loans from other banks. It is hoped that the move will ease the seizure in the credit markets and lead to a drop in mortgage rates for homeowners.

Sir John Gieve, Deputy Governor of the Bank of England, said: 'We have taken and will continue to take measures to try to ease the liquidity pressures in the financial sectors.'

There is speculation that an announcement could be made early next week when Alistair Darling is due to meet the Council of Mortgage Lenders. Lenders have been calling for more help from the Bank for months.