The government is reportedly considering pumping up to £10 billion of taxpayers' money into Northern Rock in a bid to turn the nationalised firm into a catalyst for new mortgage lending.

According to the Telegraph, the Treasury has yet to take a final decision on what to do with the bank following its nationalisation in April - but plans for a "more radical capital injection" than previously anticipated are believed to be on the table.

The capital boost would likely come in a 50-50 split of equity and a new loan, the newspaper noted.

Injecting Northern Rock with around £5 billion in equity would allow it to issue approximately £50 billion worth of new mortgages, assuming the capital is not hit by toxic debts from the bank's existing mortgage book, it added.

However, such a move would represent a move away from the government's previous policy of quickly restructuring the bank to ensure it pays back its £27 billion taxpayer bailout as soon as possible.

Earlier this week, figures from the Council of Mortgage Lenders showed gross mortgage lending at a seven-year low in December.

Rates 'headed for zero' as Bank cuts to 1%

The Bank of England today slashed its interest rate to an all-time low of 1.0%. The fifth consecutive cut in the official cost of borrowing came as the Bank warned of a 'severe and synchronised downturn' in the world economy.

The 0.5% cut will help about four million borrowers on tracker mortgages that automatically fall or rise in line with the Bank's rate.
Up to two million more on variable rate deals will also see a reduction in their monthly bills as major lenders such as Halifax and Nationwide said they would pass on the cut in full.

In total, around half of all mortgage holders should see some benefit. However, there was anger from savers who said the latest move was the 'final nail in the coffin' for people who rely on income from their nest-eggs. On another front, controversy was raging over moves to give bonuses to bankers who contributed to the financial meltdown.

The new 1% rate is the lowest in the Bank's 315-year history and has plummeted from 5% since October.

The Bank hopes that lower borrowing costs will help bring an end to the worst recession in 28 years by encouraging businesses to invest, consumers to spend and first-time buyers to go into the property market. For around 1,500 borrowers with Cheltenham & Gloucester who have tracker deals at 1.01% below the base rate, their interest bill is now effectively zero.

C&G said its computers could not cope with a zero interest rate and borrowers would be charged 0.001%, or 8p a month for a £100,000 home loan.

Borrowers on variable rates with major lenders including Halifax, Nationwide, and Lloyds will also get the benefit passed on in full.

But borrowers with other lenders on variable rates are likely to get only part of the benefit. Anxious savers were waiting to see how far rates on their accounts would be cut. Before today the average rate on instant access savings accounts was 1.07% but this is now likely to fall to about 0.6%.

Simon Hodge, an independent financial adviser on Rubii.co.uk, said: 'For savers, and pensioners in particular, this latest cut in the base rate is another major blow. While the banks may not pass on the reduction to borrowers, it's a safe bet they will pass it on to the beleaguered saver.

'In extreme cases, this could result in accounts paying zero interest, and where these accounts charge a monthly fee they could, in theory, generate a negative return.'

Louise Bond, Personal Finance Manager at comparison website uSwitch.com said: 'Today's base rate reduction could be described as the final nail in the coffin for savers. This means that people with the average savings balance of just under £3,000 will get less than £10 a year in interest - a minimal return.'
But some City economists said the Bank had no choice but to cut rates again. Stuart Porteous, head of RBS group economics, said: 'Putting a floor under the fragile economy remains priority number one. The UK's eight million net savers will have to play second fiddle for now.

New report reveals UK cities most exposed to recession

Date: 26/01/2009

Centre for Cities today released a new report that reveals the cities most exposed to recession - and least well placed to ride out job losses and business closures over the coming months. In 2009 all cities will feel recession bite but they will also be leading the upturn as the economy recovers.

While job losses in London banks dominated the headlines in 2008, this new report finds it is cities outside the South East that are likely to be hit hardest. In order to avoid a longer, more painful fight-back from recession, city-by-city front line solutions are needed now to tackle their problems head on - and lead UK PLC to recovery.

Cities on ‘red': Belfast, Liverpool and Hull with already high unemployment and high numbers with no qualifications could be exposed to recession:

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In 2008 over two thirds of the cities with the largest increases in people on Job Seeker's Allowance were in the North - suggesting early job losses amongst more vulnerable workers. Hull saw the highest increase of any UK city.
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Nearly a quarter of Belfast's working population and over a fifth in Hull have no formal qualifications - making recovery more difficult.

Cities on ‘amber': Major cities like Bristol, London and Edinburgh have strengths and weaknesses. They specialise in vulnerable financial services which are exposed to the recession. But they are better placed to weather the economic storm - with stronger employment rates, diverse industries and highly skilled populations:

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London, Edinburgh and Bristol have the 1st, 3rd and 4th largest concentrations of banking, finance and insurance jobs of any British city - a sector at risk over the coming months.
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But these cities have highly skilled residents - which means a more flexible and mobile workforce. Edinburgh ranks top - 44% of its working residents have degree level qualifications, 15 percentage points above the national average.

Cities on ‘green': The stronger city economies of the Greater South East, with highly qualified workforces and their profusion of ‘'knowledge'' industries are not immune to job losses but are likely to be less exposed and better placed to recover more quickly:

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In 2008 almost half the cities with lowest increases in people claiming Job Seeker's Allowance were in the Greater South East including Reading, Oxford, and Cambridge in 6th, 5th and 1st place, respectively - reflecting the cities' relative wealth and better prospects for new jobs.
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Cambridge saw the lowest increase of any UK city. It has the 2nd most highly qualified working residents in the country - who earn the 4th highest salaries of any UK city. It is entering recession in a position of strength.
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Oxford has the highest proportion of ‘'knowledge intensive'' employees of any England city - working for the kind of innovative firms the country needs to attract and foster to help recover from the recession, when the upturn comes.

Dermot Finch, Director of the Centre for Cities, said,

"UK cities will be hit harder than they think by this recession. Nearly all say they are well-placed to weather the storm - but they can't all be right. The recession will hit our cities in different ways - and some will be hit worse than others.

Cambridge is comparatively well-placed, with its highly-skilled workforce and global links. Bristol will lose a lot of financial services jobs, but many of its workers are highly-skilled and adaptable. Hull looks vulnerable, because many of its residents are relatively under-skilled and may find it hard to adjust.

"Cities will lead us out of recession - but they can't just rely on action from Whitehall. Each city needs its own front-line action plan, to keep jobs and retrain workers - and more powers over economic development."

Sir Jeremy Beecham, Vice Chairman of the Local Government Association said,

"The recession is going to hit different parts of the country in very different ways and even within individual regions there are marked differences as to how local areas could fare. It is clear that a national, one size fits all approach to dealing with the recession simply isn't going to work.

"The fastest way to get out of recession is for more decisions about the economy to be taken at the local level, which means councils and other local bodies continuing to work together with local people and businesses. All over the country councils are reacting quickly to the needs of businesses in their area. Councils are keen to be partners of Government in fast-tracking investment in infrastructure and the environment and in addition to stimulate the local economy by promoting the take up of council tax and other benefits alongside small business rate relief."

Despite the generally gloomy state of the housing market, a new report has claimed that around three-quarters of buy-to-let landlords are "turning a profit" on their investment.

The research from buy-to-let mortgage specialist the Money Centre, which was cited by the Residential Landlords Association (RLA), shows the number of people making money from renting out a home is at the same level as 2007, when the UK housing sector was still enjoying a boom.

Furthermore, during the last few months of 2008, the average profits made by buy-to-let landlords increased by around five per cent, the study said.

The RLA said some developers, such as Redrow Homes, have suggested that investors with liquid cash available could benefit from falling house prices and historically-low interest rates if they choose to buy into the rental property market.

According to data covering the third quarter of last year compiled by the Financial Services Authority, buy-to-let mortgages accounted for eight per cent of the residential mortgage market.

Figures from Nationwide show that average house prices fell by 15.9 per cent during 2008 to end the year at £153,048.

This week, the Woolwich unveils a one-year 2.29% fixed rate mortgage. If you've decent equity in your property (you'll need 40%), and your mortgage is big enough to justify the £995 fee, it looks like a good bet. To find out more, check out http://www.woolwich.co.uk/mortgages/fixed-rate-mortgages.html