50-billion pound mortgage plan to be unveiled

By Jodie Ginsberg

LONDON (Reuters) - The government will try to ease the effects of a credit crunch on borrowers by unveiling plans on Monday to swap government bonds worth 50 billion pounds for banks' riskier mortgage debt.

Although the move could give the economy a much-needed lift, it may not be enough to arrest a slump in popularity for Prime Minister Gordon Brown, whose bickering Labour party faces the prospect of losses in local elections on May 1.

Brown faces a growing rebellion by Labour politicians over the abolition of a 10 percent income tax rate -- a move critics say will hurt the poorest households. The issue is likely to dominate parliament when members return to work after a two-week break on Monday.

Chancellor Alistair Darling said on Sunday that the Bank of England (BoE) would announce a scheme on Monday to loan banks money in order to restart stalled mortgage lending.

"They'll be lending them money -- so it's got to be repaid -- and they'll be taking security in return for it," he said in a BBC interview.

The global credit crunch that has followed a slump in the U.S. subprime mortgage market has left British banks wary of lending to each other or offering new home loans despite three interest rate cuts by the BoE since December.

It also led to the forced nationalisation of mortgage lender Northern Rock this year in a further blow to Brown.

Brown served as finance minister for a decade under Tony Blair before Blair stepped down last June. However, his poll ratings have slumped as the financial turmoil erodes his reputation for sound economic management.