The credit crisis is so severe that dozens of smaller lenders could be forced to stop offering new mortgages unless the government intervenes, leading bankers told Gordon Brown yesterday. Financial Times

The stark warning, issued at a Downing Street summit between the heads of big banks and the prime minister, came as Mr Brown indicated he was willing to intervene in the markets, provided the banks would respond by offering loans to first-time buyers and others struggling to find mortgage offers.

The Bank of England is close to finalising the terms for such an intervention, which would see it taking over mortgage loans that are stuck on banks’ balance sheets to break the logjam in the money markets.

People familiar with the plan, which still needs government approval, said the Bank would swap securities backed by UK mortgages for government bonds for a period of one to three years.