Banks get until 2019 to ringfence high street operations

Sir John Vickers, chairman of the Independent Commission on Banking, speaks at a press conference on the commission's interim report earlier this year. Photograph: Dominic Lipinski/PA

Britain's biggest banks are to be given until 2019 – longer than had been expected – to implement radical reform of their operations to prevent another taxpayer bailout of the system.

The Independent Commission on Banking – issuing its report almost three years to the day after the collapse of Lehman Brothers which led to the major 2008 bank bailouts – said that banks should ringfence their high street banking businesses from their "casino" investment banking arms.

The much anticipated final report by Sir John Vickers admitted its proposed reforms would cost between £4bn and £7bn but were more practical and less expensive than the full-scale separation of the kind that business secretary Vince Cable had called for in opposition.

The ICB conceded that its reforms were "deliberately composed of moderate elements" but insisted "the reform package is far-reaching".

It said: "Together with other reforms in train, it would put the UK banking system of 2019 on an altogether different basis from that of 2007. In many respects, however, it would be restorative of what went before in the recent past – better-capitalised, less leveraged banking more focused on the needs of savers and borrowers in the domestic economy. Banks are at the heart of the financial system and hence of the market economy. The opportunity must be seized to establish a much more secure foundation for the UK banking system of the future". George Osborne welcomed the report and said: "The government will now get on with implementing the report." He promised legislation would be passed before the end of this parliament – but would give banks the time frame recommended by Vickers. The chancellor is to address parliament on Monday afternoon.

Up to £2tn of assets could end up inside the 'firewall' – including all domestic high street banking services – as the ICB said that the aggregate balance sheets of the UK's banks was over £6tn and that between one sixth and one third of these should be protected from investment banking operations.

While the ICB made it clear that the current crisis in the eurozone should delay the reforms, it also set a deadline of 2019 for implementation of the changes to coincide with the international capital rule changes being introduced by regulators in Basel, Switzerland.

"Postponement of reform would be a mistake, as would fail to provide certainty about its path. However, it is important that the current economic situation be taken into account in the timetable for implementation of reform. The Commission's view is that setting 2019 as the final deadline for full implementation provides ample time to minimise any transition risks."

The ringfencing is expected to have the biggest implications for Barclaysand the bailed-out Royal Bank of Scotland.

But the ICB provided some relief for bailed-out Lloyds Banking Group by back-tracking on an idea that it be forced to sell off an extra tranche of branches in addition to the 632 currently up for sale to meet EU demands on state aid. However, it said that the high street banking businesses – dominated by Lloyds since the rescue of HBOS in September 2008 – should be referred for a full competition investigation in 2015. Lloyds, which had lobbied hard against the proposal, said on Monday it is "currently assessing the full implications".

The British Bankers' Association said: "UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained. The ICB's recommendations cover the same important issues. Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally. It is vital that the full impact any further reforms will have on the economy, the recovery and banks' ability to support their customers in the UK is understood."

US jobs data puts markets on recession alert

An outdoor job fair in South Los Angeles. Markets fear that the US economy is sliding back into recession. Photograph: Robyn Beck/AFP/Getty Images

Fears are mounting that key US unemployment data will show the world's biggest economy is teetering on the brink of re-entering recession.

US non-farm payroll data – due out at lunchtime on Friday – is expected to show an increase of about 60,000 jobs in August, far below a 117,000 increase in July. Economists at Goldman Sachs warned investors on Thursday that they expect an increase of just 25,000 jobs, compared with an earlier estimate of 50,000. There have even been suggestions that the figure could be negative, which would send further shockwaves through global markets.

Reflecting those fears, gold, the traditional safe haven in troubled times, jumped more than 1% to $1853.

The expected slowdown in job creation is worrying because the US generally needs to add about 150,000 jobs each month just to keep up with the growth in the working-age population.

Fears about jobs and the overall health of the US economy pushed down markets across the world, with the FTSE 100 down 87 points to 5330, a fall of 1.6%.

Tim Schroeders, who helps manage $1bn of equities at Pengana Capital in Australia said: "The US recovery remains anaemic, with lingering concerns over job creation and house prices. Expectations are relatively low for tonight's jobs data."

Ben Potter, market strategist at IG Markets, said traders were suffering with "classic nervousness" ahead of the jobs data. "As it stands, the market is expecting a figure of around 70,000 jobs. However, the whisper numbers have been as low as zero," he said. "So an inline result could see the market move higher."

Michael Hewson, market analyst at CMC Markets, said: "At the beginning of the week expectations were for a number of around 90,000, but as the week has progressed subsequent revisions have moved the bar lower.Thursday's Institute for Supply Management [ISM] manufacturing number gave the markets a brief boost after the headline figure remained in expansion territory against expectations, however after scratching a little below the surface the picture wasn't as rosy as first appeared with new orders contracting at 49.6, and construction spending for July falling back by 1.3% much more than expected.

There now remains a concern in some quarters that Friday's number could well be negative, which would be a shock and certainly give the Fed and the markets food for thought. In any case the consensus has now moved to between 25,000 and 65,000, with the unemployment rate staying at 9.1%."

Clash with Boehner

President Obama is due to unveil his plan to tackle unemployment and revive the economy next week – but only after settling a diary clash battle with John Boehner, the Republican speaker of the House of Representatives.

White House officials had asked Boehner if the president could address a joint session of Congress next Wednesday. Normally, such a request for a big set-piece speech would have been granted automatically. However, growing political friction in Washington led Boehner to deny the request. Boehner said the speech would have clashed with a series of already scheduled votes. But many political experts say the real reason was because it clashed with the next Republican presidential debate.

Obama has been forced to delay his speech until next Thursday when he will arguably be up against even tougher competition: the nationally televised opening game of the new NFL season featuring the defending Super Bowl champions, the Green Bay Packers.

The FTSE 100 index was down 1% to 5357 at 8am, with only two companies – Inmarsat and Rangold Resources – in positive territory. Banks were among the biggest fallers today, with RBS down more than 3%, at 25.42p and Barclays 3% lower at 175p.

The decline in the FTSE was mirrored by similar falls across Europe and Asia, with Japan's Nikkei falling back below the 9,000 points level after six straight days of gains. In the US the S&P 500 is forecast to open 0.5% down.

US authorities to sue big banks over sub-prime crisis

The FHFA claims banks failed to notice borrowers were taking on mortgages they could not afford. Photograph: Getty Images

US authorities are preparing to sue more than a dozen big banks over claims they misrepresented the quality of mortgages sold during the 2006-7 housing bubble.

The US Federal Housing Finance Agency (FHFA), which is overseeing the remains of failed mortgage giants Fannie Mae and Freddie Mac, is reportedly planning to argue that America's biggest banks failed to check the health of mortgages before they sold them on to investors. The collapse of hundreds of thousands of sub-prime mortgages triggered the 2008 credit crisis and the collapse of Fannie and Freddie.

The New York Times said the FHFA is expected to file the lawsuit against the banks, including Bank of America, JP Morgan, Goldman Sachs and Deutsche Bank, as early as Friday. The agency, which is seeking billions of dollars in compensation, claims the banks failed to notice that borrowers were taking on mortgages that they could not afford.

The FHFA lawsuit, which follows a subpoena issued to the banks last year, demands that the banks pay compensation to cover some of the $30bn (£18.5bn) Fannie and Freddie lost on mortgage-backed securities. Most of Fannie and Freddie's losses were borne by US taxpayers after the government was forced to step in and bailout the pair to the tune of $141bn.

It follows a similar $900m lawsuit filed against Swiss bank UBS in July. At the time UBS said it would "vigorously" defend all charges brought against it.

In total the FHFA issued 64 subpoenas to the issuers and servicers of mortgage-backed securities last year. Last week the agency's director, Edward DeMarco, who declined to discuss the pending lawsuit, said there were "more to come". The banks declined to comment to the New York Times.

Action by the FHFA comes as the US Federal Reserve announced a formal enforcement action against Goldman Sachs "to address a pattern of misconduct and negligence relating to deficient practices" in its handling of mortgage loans. The Fed said Goldman will be legally required to compensate any homeowners that were found to have been financially harmed by the alleged misconduct. It did not speculate on the size of the potential compensation claims.

The Fed's action is the latest step in the US government's investigation of "robo-signing" – in which bank employees signed foreclosure documents without reviewing case files as required by law. The Fed said employees at Goldman's Litton Loan Servicing unit engaged in robo-signing and took actions in foreclosure and bankruptcy cases "without always confirming that documentation of ownership was in order".

Separately, the New York State Banking Department announced that Goldman had agreed to write off $53m of the outstanding debts on about 150 mortgages it owned in New York. Accepting the writedown was a condition for allowing Goldman to sell Litton to Ocwen Financial in a $260m deal late on Thursday.

Europe rejects IMF call for more bank capital

FRANKFURT | Thu Sep 1, 2011 7:33am EDT

European bankers and politicians leapt to defend the region's banks on Thursday, rejecting an International Monetary Fund (IMF) estimate that they need 200 billion euros ($290 billion) in new capital to reflect sovereign debt losses.

IMF chief Christine Lagarde's call on Saturday for mandatory capitalization of European banks to prevent a world recession has reignited a debate over whether they have raised sufficient capital to withstand a severe downturn.

The clash highlights diverging views about the underlying safety of the European banking system. The IMF and the International Accounting Standards Board (IASB) have both voiced concerns, while European regulators, politicians and banking associations argue that banks have a sufficient capital cushion to cope with market turbulence and worries over sovereign debt after several rounds of capital raising across the continent.

A European source told Reuters on Wednesday that the IMF had estimated European banks could face a capital shortfall of 200 billion euros, a figure rejected by European bankers and policymakers.

The IMF figure is much higher than estimates of banks' capital needs following stress tests in July.

J.P Morgan has estimated that based on the stress-test data, European banks showed a capital deficit of 80 billion euros, with UK banks needing 25 billion euros, French banks 20 billion euros and German lenders 14 billion euros.

The European Commission reiterated it saw no need for drastic action since the publication of the stress test results, echoing comments made by the European Banking Authority on Tuesday.

"Our analysis of the situation hasn't changed, it is in fact shared by the member states. We did have an in-depth discussion when the results of the stress tests for banks were presented and this our diagnosis and there is no reason to change it now," Commission spokesman Amadeu Altafaj told a regular briefing.

The bank stress tests did not factor in the impact of a significant drop in the value of sovereign debt.

A Euro zone official who declined to be named said "We are aware of those (IMF) numbers, but we think there are serious methodological flaws in that paper and discussions are going on with the IMF about them."

Eurozone governments and the European Central Bank disagree with the "very questionable" methodology of the IMF estimates on bank capital requirements, another European government official said. The European Central Bank declined to comment.

The view was echoed by the German Banking Association BdB which represents lenders such as Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE), and the VOEB, which represents troubled lenders such as WestLB. Both insisted there was no immediate need to inject capital into German banks.

"We do not understand how the IMF has come to this conclusion. Earnings statements do not back the conclusion of such a situation among German banks," the German VOEB said.

France took a similar line on its banks, whose shares came under intense pressure during August amid concerns over access to funding, with French Budget Minister Valerie Pecresse saying they were not a cause for concern.

"French banks are now better capitalized than a year ago; they passed stress tests which were extremely tough less than a month ago. I don't think there is any cause for worry over French banks," she said at an event on Thursday.

European bank shares traded slightly lower by 1043 GMT, with the STOXX 600 European banking index .SX7P down 0.4 percent. Meanwhile, key euro-priced bank-to-bank lending rates edged higher, driven by concerns about the outlook for the economy and euro zone banks.

The fight over whether European banks have sufficient capital highlights a flaw in the accounting treatment of sovereign debt, experts say.

"One enormous weakness is that European banks are encouraged to load up on sovereign debt without pricing in the appropriate risk penalty," said Roger Myerson, winner of the Nobel memorial prize in economics in 2007. "It creates the wrong incentives for governments and banks."

Myerson, who was recognized for his contributions to mechanism design theory, said that under Basel accounting rules, sovereign debt is still given a risk weighting of zero.

This encourages banks to buy risky debt without having to build an appropriate capital cushion, and provides an incentive for governments not to address their deficit levels since they are still able to issue debt.

"This looks like the entire problem of the euro zone," Myerson told Reuters.

But accounting body the IASB said European financial institutions should have been more aggressive in booking losses on Greek government bonds. Writedowns disclosed in results varied from 21-50 percent.

At the low end this corresponded to the so-called "haircut" on banks' share of a planned second bailout of Greece now being finalized. A 50 percent loss represented the discount markets were expecting at the end of June.

Eight European banks failed the EU stress test in July, and the total new capital they needed to remedy the situation was 2.5 billion euros ($3.6 billion), less than had been expected before the tests.

($1 = 0.695 Euros)

Brent falls on poor Europe, U.S. data

LONDON | Thu Sep 1, 2011 9:02am EDT

(Reuters) - Brent crude fell on Thursday as U.S. productivity data and European manufacturing data pointed to a slowing economy, fuelling fears of a decline in fuel demand from industrialized nations.

U.S. non-farm productivity fell by 0.7 percent, the biggest decline since the last quarter in 2008, while new U.S. claims for unemployment benefits last week fell as expected.

Front-month Brent touched $115.27 a barrel, the highest intraday price since August 3, before falling to a low of $113.61. By 1249 GMT, October Brent was at $114.19, down 66 cents. U.S. crude benchmark West Texas Intermediate (WTI) fell 29 cents to $88.50.

The U.S. data was preceded by figures showing weakening German manufacturing activity in August, which grew at its slowest pace in almost two years, and French manufacturing activity, which contracted for the first time since July 2009.

"The main thing putting pressure on oil this morning is the really bad PMI (Purchasing Managers' Index) readings in Europe," Olivier Jakob from Petromatrix said. "We have an contraction overall in Europe in the PMIs, this is confirmation that the economy is slowing down."

The weak European data sent financial markets into a rout, with a broad sell-off only tempered by hopes of further quantitative easing in the United States. <MKTS/GLOB>

"The weak PMIs point to a slowdown in world economic activity," Christophe Barret from Credit Agricole CIB said.

Prices rose earlier in the session after China's manufacturing data showed an improvement in August, raising hopes growth in the world's largest energy consumer could offset slowing industrialized economies. China's PMI rose to 50.9 in August from a 28-month low of 50.7 in July, official data showed.

"Generally China has surprised on the upside and we expect it to continue to do so, although it will continue to moderate growth," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

"We acknowledge the difficulties for China's policymakers to deal with inflation, but we still think that the economy will be stronger than the market is fearing."

China Premier Wen Jiabao signaled on Thursday that controlling inflation would remain a top priority in coming months even as the world economy wobbles.

EYES ON U.S. JOBS

Investors remained focus on Friday's U.S. non-farm payrolls report for August as a guide for direction in the oil market. Payrolls are expected to have increased by 75,000 jobs, according to a Reuters survey, slowing from July's 117,000 rise.

Crude prices rose on Wednesday after a report showed the U.S. private sector added 91,000 jobs in August, while an index of factory activity in the U.S. Midwest in August and U.S. July factory orders were better than expected.

Still, the data continued to portray an economy struggling to mount a sustained recovery, raising expectations the Fed would adopt new measures to shore up the economy.

"It is still mainly the hopes of further liquidity injections from the Federal Reserve that are giving lift to oil prices. From a fundamental perspective, prices have meanwhile exceeded their justified level," Commerzbank analyst Carsten Fritsch said in a note. "As long as speculation about 'QE3' continues in the market, this current exaggeration should remain intact, although the air will get thinner for further price gains."

HURRICANE WATCH

Concern about hurricane-related disruptions to supply in the U.S. Gulf of Mexico also supported oil prices.

Katia strengthened into a hurricane over the Atlantic on Wednesday, while another mass of thunderstorms that could become a named storm this week triggered evacuations of some oil workers from the Gulf of Mexico.

BP (BP.N) began to evacuate more than 500 non-essential workers from four platforms in the region, home to large volumes of crude and natural gas production.

Brent crude gained in the previous session on the back of a sharp drop of 2.8 million barrels in U.S. gasoline stockpiles last week and as North Sea production issues keep European crude supplies tight.

House prices show August fall

Nationwide says house prices are a 'picture of relative stability'. Photograph: Dan Kitwood/Getty Images

House prices fell by 0.6% in August, according to Nationwide's latest survey, more than reversing July's rise and surprising economists who had expected them to stay flat.

The building society's monthly snapshot of the housing market showed the average price of a home in the UK fell by £2,817 over the month to £165,914. This is 0.4% lower than in August 2010.

Economists polled by Reuters had forecast that prices would remain flat in August, giving a 0.4% rise year-on-year.

Nationwide said house prices had actually increased by 0.1% over the less volatile three-month measure, though this was lower than the 0.3% rise seen in the previous three months.

Its chief economist, Robert Gardner, said a "picture of relative stability" had characterised the market over the past 12 months, and that this was expected to remain the case for the rest of 2011. However, he warned that any increase in unemployment could lead to sharper falls.

"For some time now the residential property market has been moving sideways, as weak demand for homes coexisted with a situation where relatively few homes were coming on to the market," he said.

"A further fall in employment would be likely to upset the relatively delicate demand-supply balance and put downward pressure on prices."

Howard Archer, chief UK economist at IHS Global Insight, said the latest figures were consistent with his expectation that house prices would continue to fall.

"The fall in August ties in with our belief that house prices are likely to trend down gradually over the coming months in the face of persistently weak economic activity, rising unemployment and low consumer confidence. Specifically, we forecast house prices to fall by around 5% by mid-2012.

"We suspect that squeezed household purchasing power, tightening fiscal policy, a weakening labour market and persistent serious consumer concern over the economic outlook will limit potential buyers and weigh down on house prices. On top of that, there are still significant difficulties in getting a mortgage, particularly for first-time buyers."

Nationwide's index is based on mortgages it has approved in the previous month, so does not reflect the whole market. Figures from the Land Registry, which are based on completed sales in England and Wales, have tended to show larger annual price falls than Nationwide in recent months. The figures for July, published on 26 August, showed house prices down by 2.1% year on year.

Housing minister to 'get Britain building again' in market crisis

Housing minister Grant Shapps has announced plans to 'build more houses' as a federation report shows ownership dropping and 'unaffordable' prices. Photograph: Lewis Whyld/PA

The housing minister, Grant Shapps, has admitted that house prices in Britain have become "too unaffordable", following a report warning that the housing market is in crisis as home ownership falls and property prices soar.

But the minister insisted that government plans would get "Britain building again" as he outlined a number of measures, including planning reforms and a release of thousands of acres of public land, designed to increase the number of homes built.

"The charge is correct. House prices are too unaffordable in this country," said Shapps. "The government's responsibility is to respond to people's aspirations and lots of people … want to own their own properties. I think the government should stand right behind them, and we will."

Shapps sought to reassure aspiring home owners who are priced out of the market, as the National Housing Federation published a study on Tuesday which forecast that ownership in England would slump to just 63.8% over the next decade – the lowest level since the mid-1980s.

The federation, which represents England's housing associations, blamed the bleak outlook on an under-supply of homes, which it warned risked locking an entire generation out of the housing market.

David Orr, chief executive of the federation, said it was time to face up to the fact that Britain had a "totally dysfunctional housing market" with home ownership in decline, rents rising rapidly, and social housing waiting lists at a record high.

Huge purchase deposits, combined with high house prices and strict lending criteria, had sent home ownership into decline in recent years, and the downward trend would continue for the foreseeable future, the federation's independently commissioned forecasts predicted.

With 105,000 homes built in England in 2010-11 – the lowest level since the 1920s – the federation called for more government investment in affordable housing.

Orr said home ownership was increasingly becoming the preserve of the wealthy, and, in parts of England, such as London, the "very wealthy".

He said: "At the heart of this crisis is a chronic shortage of new homes. Despite the overwhelming need to increase supply, house building has slumped to a 90-year low, plunging the country even deeper into the mire.

"Ministers need to make unused public land available to housing associations, local authorities must assess the level of housing need in their area, and housing has to be finally treated as a top political priority."

Doing the rounds of television studios on Tuesday, Shapps blamed a tripling of house prices, between 1997 and 2007, which put home ownership out of the reach of many. "Despite the need to tackle the deficit we inherited, this government is putting £4.5bn towards an affordable homes programme which is set to exceed our original expectations and deliver up to 170,000 new homes over the next four years."

But the NHF said this move represented a 63% cut on the previous programme of spending on homes to rent or buy.

Shapps also pointed to a government scheme to make more public land available for homes. "We are releasing enough government land to build Leicester twice over across the country – it is a massive programme. The new-homes bonus is a multibillion pound incentive to communities to build programmes, and we are hugely reforming the planning system, which is massively complex."

But Labour said that the government's changes to housing policy would make it "harder, not easier" for people to buy property.

Alison Seabeck, Labour's shadow housing minister, said: "For many months Ed Miliband has been campaigning to protect the promise of Britain – the commitment that each generation will do better than the last. The Conservative-led government are breaking this promise by cutting investment in housing and removing the requirement on local authorities to allow new homes to be built, putting renting or buying a property out of reach for far too many people."

The NHF forecast that the proportion of people living in owner-occupied homes in England would fall from a peak of 72.5% in 2001 to 63.8% in 2021. In London, the majority of people living in the capital would be renting by 2021, the number of owner-occupiers falling from 51.6% in 2010 to 44% by 2021, the NHF added.

The only English region experiencing any increase in owner-occupier numbers over the next 10 years would be the north-east, with a rise from 66.2% to 67.4%, the federation predicted.

Jenny Jones, a Green party member of the London assembly, called for better protection for the increasing numbers of people in the private rental sector as levels of home ownership declined. More and more Londoners were relying on "one of the most insecure rental sectors in Europe" where tenants were unable to resist rent hikes and were "scared to challenge slum landlords", she said.

European banks 'may have inflated balance sheets over Greek debt'

Some banks are using models instead of market values to mark down Greek assets, says the International Accounting Standards Board. Photograph: Stephan Hoeck/Getty Images/Stock4B Creative

The International Accounting Standards Board has said European banks may have inflated their balance sheets and profit and loss accounts by not taking full writedowns on distressed Greek debt.

In a highly unusual intervention, the IASB on Tuesday published a letter from chairman Hans Hoogervorst to the European Securities and Markets Authority saying that some banks were using models to mark down the value of Greek assets, where market valuations existed.

When accounting for trading assets, banks are required under International Accounting Standard 39 to use arm's-length values taken from actual transaction prices to value the assets on their books. Where trading is very illiquid and market valuations cannot be obtained, they can then use valuation models using internal estimates of value.

"There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of [accounting standards]. This is evident particularly in their accounting for distressed sovereign debt, including Greek government bonds. Those indications have now been confirmed by recently published financial reports, which show inconsistent application across Europe. This is a matter of great concern to us," Hoogervorst said in the letter.

The letter does not name the banks concerned, but the Financial Times said it related to the accounting of BNP Paribas and CNP Assurances. Both took 21% writedowns on Greek debt, much smaller than the hits suffered by other banks, including RBS, which took a 51% writedown.

"It appears that some companies are not following IAS 39 when determining whether the Greek government bonds are impaired. They are using the assessed impact on the present value of future cash flows arising from the proposed restructure of those bonds, rather than using the amount reflected by current market prices as required," the IASB letter said.

The IASB pointed out that trading in Greek debt was continuing and therefore any values thrown up by those transactions should be used by banks to determine impairments.

"A company cannot ignore relevant market data (including observable transaction prices) when it is clear that market participants would use that data in determining the price at which they would be willing to enter into a transaction for the financial asset."

The writedowns being taken do not reflect market prices as a result, Hoogervorst said. "It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used."

A BNP spokeswoman told Reuters: "BNP took provisions against itsGreece exposure in full agreement with its auditors and the relevant authorities, in accordance with the plan decided upon by the European Union on 21 July."

CNP declined to comment.

The IASB is responsible for setting accounting standards but not for enforcing them.

Home ownership 'to fall to mid-80s levels'

The proportion of people living in owner-occupied homes is forecast to fall to 63.8% by 2021, down from 72.5% in 2001. Photograph: Luke Macgregor/Reuters

The housing market is in crisis as home ownership tumbles and house prices soar, a study has warned.

Home ownership in England will slump to just 63.8% over the next decade – the lowest level since the mid-1980s, the National Housing Federation's forecast, published on Tuesday, said.

Huge deposits, combined with high house prices and strict lending criteria, have sent home ownership into decline, the federation said.

The housing minister, Grant Shapps, admitted that "we have not been building enough homes", but insisted the government was "in the process of reversing that through massive planning reform" and a "massive programme" involving the release of thousands of acres of public land to build new homes.

The National Housing Federation, which represents England's housing associations, warned that the housing market will be plunged into an unprecedented crisis as it also forecast steep rises in the private rental sector and a house price boom. It blamed the bleak outlook on an under-supply of homes in the UK.

The chief executive, David Orr, said: "With home ownership in decline, rents rising rapidly and social housing waiting lists at a record high, it's time to face up to the fact that we have a totally dysfunctional housing market.

"Home ownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy.

"And for the millions locked out of the property market, the options are becoming increasingly limited as demand sends rents rising sharply and social homes waiting lists remain at record levels."

Shapps said the reason house prices had become so unaffordable was a tripling of prices in the space of 10 years from 1997 to 2007, which put them out of reach for many people.

Asked about the study's forecast for future levels of home ownership, the minister said forward predictions were "hellishly difficult" to make and were "nearly always wrong".

He cited a Halifax survey showing that house price affordability has been "improving quite dramatically" and that prices were more affordable than any time over the last 12 years.

However, he admitted there were significant challenges for first-time buyers and said the government had a responsibility to help home ownership.

Asked about the measures being taken, he told BBC Radio 4's Today programme: "We are releasing enough government land to build Leicester twice over across the country – it is a massive programme.

"The new homes bonus is a multi-billion pound incentive to communitiesto build programmes, and we are hugely reforming the planning system, which is massively complex."

He said thousands of pages of planning guidance and law were being boiled down to about 60 pages in a reform "that even the National Housing Federation, who have produced this report this morning, approve of".

He added that he would be very disappointed if it did not achieve the goal of building more homes.

The federation forecast that, in England, the proportion of people living in owner-occupied homes will fall from a peak of 72.5% in 2001 to 63.8% in 2021.

In London, the majority of people will rent by 2021, with the number of owner-occupiers falling from 51.6% in 2010 to 44% by 2021, it said.

The north-east will be the only English region to see any increase in owner-occupier numbers over the next decade, rising marginally from 66.2% to 67.4%, the federation predicted.

Meanwhile, the average house price in England will rise by 21.3% over the next five years from £214,647 in 2011 to £260,304 in 2016, according to Oxford Economics, which was commissioned to produce the forecasts.

Average rents in the private sector are forecast to increase by 19.8% over the next five years, fuelled by high demand and a shortage of properties.

About 4.5 million people are currently on social housing waiting lists, but only those in the most desperate of circumstances have a realistic chance of being allocated a home.

The federation said that, in 2010-11, 105,000 homes were built in England – the lowest level since the 1920s.

Consumer confidence tumbles amid debt crises and market upheaval

A shopper on Broadway, New York. Photograph: Chris Hondros/Getty Images

Debt crises and financial market turmoil have triggered sharp falls in consumer confidence in Britain, the rest of Europe and the US, threatening to plunge western economies into a downward spiral. Pessimism among Britons has reached levels usually seen in a recession, while US consumer confidence tumbled to the lowest in two years.

Economists and government officials say the eurozone is being affected by the recent market turbulence caused by growing fears that some governments, led by Greece, could default on their debts. Stock and bond markets have fallen sharply in recent weeks, amid concerns that efforts by eurozone government leaders are not enough to contain the crisis.

Confidence in the US also fell sharply by almost 15 points to 44.5, according to the Conference Board's monthly gauge. This is the lowest level since April 2009 and worse than analysts had expected.

"This is just so ugly," Tom Porcelli, US economist at RBC Capital Markets in New York, told Reuters. "Should we even be surprised by this? Slipping into levels we saw during the recession – that's where the consumer psyche is. They are wondering out loud whether the economy is slipping back into a recession."

A closely watched index measuring UK consumer confidence from GfK NOP dropped for the third month in a row to hit -31 in August, 13 points below a year ago and one point lower than July. The index also hit -31 in April this year, but bounced back the following month boosted by sunny weather and the royal wedding.

Previously, it had only been as low on two other occasions – during the downturn of 2008-2009 and in the early months of 1990. On both occasions the decline in consumer confidence mirrored a slide into recession, noted Nick Moon, managing director of GfK NOP Social Research.

"With an increasing number of indicators suggesting the economy is either stagnating or returning to recession, the continuing loss of consumer confidence is a major worry for the government," he added. "However, despite the four-point drop in consumers' general view of the economic situation over the next 12 months, there has been a small improvement in how they view their own financial situations, indicating people are starting to adapt to the austere economic climate."

The royal feel-good factor has clearly worn off as the US and eurozone debt crises deepened, triggering fears the world economy could slide back into recession. Britons are putting off buying big items such as a car or house, with the major purchases measure staying at -31, down 11 points from a year ago.

In the eurozone, business and consumer confidence declined for the sixth month. The European Union's economic sentiment index fell by 5 points to 97.3 for the EU, and by 4.7 to 98.3 for the 17 countries using the euro, taking the index below its long-term average of 100. Germany, Europe's largest economy which has been the main engine of growth in the past year, suffered the biggest drop.

François Cabau, European economist at Barclays Capital, said: "For the first time since December 2008, both headline business and consumer confidence fell by more than three points. In a month affected by volatile market behaviour, we believe that the deepening of the sovereign debt crisis, combined with the material loss of momentum in the real economy, risks plunging confidence indices into a self-sustaining negative spiral."

Unemployment expectations rose 9.4 points to 25.5, the highest index level since July 2010. Perceptions of the general economic situation in the next 12 months have worsened sharply too, to -23.4 from -14.2, the lowest level since July 2009.