The credit crunch could last another 18 months, with the property market to remain stagnant until 2010, a leading British mortgage provider warned today.

Andy Hornby, chief executive of HBOS, said house prices were not likely to rise again until 2010 while lenders waited "to give the confidence back into the system for banks to start lending again".

Hornby - whose bank owns the Halifax and Bank of Scotland - said British banks would continue to suffer major problems in offering loans until they could once again raise significant sums on wholesale financial markets.

The HBOS chief said that US money-market investors would not resume channelling of money to UK banks for mortgage-lending until US house prices started to recover — a process he said was set to last well into 2010.

"My personal view, for what it's worth, is that it will take 18 months to play through the system," Hornby said.

"It's going to take 18 months before US house prices have started to rise again - which is what's required for banks to have the confidence to start lending again. It will take a long time to play out."

Hornby said the UK economy would continue to see a considerable slowdown in GDP and a continuance in house price deflation, which is stronger than the early 1990s.

"To balance that.., I don't believe unemployment levels are going to get as high as they peaked in the early 1990s. That's going to be the very important underpin in terms of people being able to keep paying mortgages.

However, Hornby said he was confident that the market would recover in the longer term once US house prices started rising again, though he made clear he did not expect growth to return to the high rates seen in recent years.

"I believe it will be growing again, if you are talking about a three to five-year period," he said.

"I do believe markets correct over time and I believe asset-backed securities will have come back into some kind of normal trading environment and therefore wholesale markets will have unblocked.

"However, I don't think the growth in credit will be as strong as we saw in the previous cycle. I think banks' models will be altered for the long term."

Asked if the package of measures unveiled last week by Prime Minister Gordon Brown to assist those affected by the difficulties in the property market would have an impact, Hornby said: "These small initiatives will help the market, but there is no magic bullet.

"Nothing is going to change the core correction mechanisms that always happen in markets as supply and demand balance over time. I don't think individuals' behaviour is going to be massively affected."

Hornby's comments come in the same week that London’s index of leading blue-chip shares, the FTSE 100, suffered a 7% fall in value, its largest since July 2002.

The pound sterling dropped to a two-year low against the dollar, after the Organisation for Economic Cooperation and Development forecast that the UK economy would fall into recession this year.

Chancellor Alistair Darling had earlier said that Britain and the world were facing economic times that “were arguably the worst they’ve been in 60 years”.

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