Property owners are being refused investment by banks because of an impasse between the insurance industry and the Treasury over terrorism cover.

According to market sources, banks and other investors are becoming nervous of backing businesses while terrorism cover is uncertain.

Meanwhile, the Treasury and the Association of British Insurers (ABI) said they had no significant developments to report in their terrorism discussions.

This is despite sources saying there is movement behind the scenes, with all parties agreeing to keep it confidential until a complete deal can be announced.

Earlier this year, most insurance companies limited the heads of cover within policies to £100,000 for terrorism claims, although some risks can still be placed in Lloyd's.

Large commercial property brokers said the Treasury promised a solution to the market gap by early March but, instead, issued a challenge to the insurance industry to prove it needed help.

Although rumours that a solution for property and business interruption risks was near - thesehave been circulating since April - the brokers said they had nothing concrete to tell clients.

"If we have banks lending hundreds of millions of pounds to our clients, there is a valid reason as to why they're unhappy with the current situation," one commercial property specialist said.

"I'm getting more and more commercial lenders inquiring as to what the situation is over terrorism cover.

"The lenders are uneasy lending millions of pounds to commercial enterprises if they're not fully covered for terrorism."

The broker said some clients had been refused investment because of the uncertainty.

"They're going to start losing money and will go out of business and, while this black cloud is hovering, it seems the ABI and the Treasury are happy to keep ticking along."

Another broker said he expected terrorism cover to become even more limited as many reinsurance arrangements come up for renewal in the coming month.

British Insurance Brokers' Association (Biba) chief executive Mike Williams said he had feared that a lack of terrorism cover could create problems for large corporates but had not seen any evidence of this.

He encouraged brokers to contact Biba so he could present their evidence to the Treasury.