Britain's banks may have to write off £38bn of mortgage debt as plunging house prices send almost a fifth of the home loans on their books into negative equity, according to leading City analysts.
Write-offs on that scale will dwarf the cost of the Nineties housing depression, when mortgage bad debts reached more than £12bn. Lenders today are more exposed than in the Nineties, when £3.4bn of the write-offs were borne by insurance companies which had issued mortgage indemnity guarantees - policies covering loan losses that no longer exist.
The prediction, by Bernstein Research, is based on forecasts that property values will fall by between 25-35% from their peak. The Halifax last week said house prices had already dropped by 10.9% over the past year, their biggest fall in a quarter of a century.
The biggest loser is expected to be Halifax owner HBOS, Britain's largest lender, where Bernstein is predicting almost £6bn of write-offs between 2009 and 2011. That is more than the £4.1bn profit it made in the whole of last year.