EU power 'a threat to loans'

MORTGAGE lending could be thrown into chaos by the proposed European constitution, financial experts have warned.

Senior economists, including a former close colleague of Bank of England Governor Mervyn King, point out that the proposals prohibit discrimination based on property ownership.

This means that 'red lining' of slum areas by mortgage lenders would be banned. The experts believe this would probably result in 'a reluctance by major financial institutions to engage in low-quality lending at all, rather than adopt a policy of indiscriminate lending in such areas'.

A paper published by CESifo, an influential Munich-based think-tank, claims that banking, insurance and welfare systems would grind to a halt if the constitution's anti-discrimination clauses were not changed.

Among the report's authors is John Kay, the London School of Economics professor who has written a book with King, a former LSE colleague.