Mortgage rescue plan could come next week

By Matt Falloon

LONDON (Reuters) - The authorities could announce as early as next week the details of a plan to ease tight conditions in the mortgage market, a source close to the situation said on Thursday.

Pressure has been growing on the government and BoE to do more to ease a lending squeeze that is threatening to drive Britain into an economic slowdown.

Mortgage lenders have already warned lending could halve this year and, with elections due by May 2010, the government is desperate to avoid another bank falling foul of the credit crunch after Northern Rock was nationalised last month.

Prime Minister Gordon Brown's popularity has slumped since taking over the reins from Tony Blair last year as voters begin to question his reputation for sound economic stewardship.

"It could come as early as next week. We're working closely with the Bank of England on this," the source told Reuters, on condition of anonymity.

"This is a high priority but the important thing is that we get the details right and we're focusing on that."

The pound rose on the news as speculation has been growing that the plan will allow banks to temporarily swap mortgage-backed securities for government bonds to help free up their balance sheets and allow them to lend more to consumers.

That could ultimately mean the BoE may not have to cut interest rates as aggressively as markets have been betting on.