The Bank of England is poised to intervene in the credit-starved mortgage market as lenders warn that the crisis could see a raft of smaller providers close to new borrowers, it has been reported.

The Bank is understood to be working on a plan to free-up the crunch that is crippling the UK's mortgage sector by taking mortgage loans off lender balance sheets, according to The Financial Times.

It is thought that lenders on Tuesday warned the Government, which has yet to approve the plans, that dozens of small players could be forced to stop offering new mortgages, leaving only large providers in the market.

Gordon Brown indicated in Tuesday's Downing Street talks with bank bosses that he was willing to intervene if banks in return offered loans to first-time buyers and those struggling to find mortgage offers.

The Bank's plan would reportedly see it swap securities backed by UK mortgages for Government bonds for a period of one to three years.

But it is believed the Bank, which was not immediately available for comment, will not take on any mortgages that were agreed after the end of December last year as it seeks to ensure it is not propping up the new lending market or putting the taxpayer at risk.

The Prime Minister held talks with bosses from Lloyds TSB, Barclays, HSBC, Royal Bank of Scotland and Nationwide on Tuesday over how to minimise fall-out from the global credit squeeze.

Number 10 said they discussed the "next steps" in securing the financial system amid evidence that property prices are slumping sharply and borrowing costs rising.

Mr Brown is said to have urged the bosses to ease the strain on householders by passing on last week's 0.25% interest rate cut, which saw the base rate fall to 5%.

A number of lenders - including nationalised bank Northern Rock - have yet to pass on the cut as they continue to battle against soaring wholesale money market costs.