Mortgage lending falls by 70%

Last Modified: 01 Dec 2008
Source: PA News

Mortgage lending dived by nearly 70% in October as the credit crunch continued to stifle the market, figures showed.

Net lending, which strips out redemptions and repayments, reached just £459 million during the month, the second lowest figure recorded by the Bank of England since it began to collect data in this format in 1993. The steep slide was blamed on the ongoing problems in the mortgage market as a result of the credit crunch.

The low level of lending, which compared with a sum of £1.49 billion in September, was also thought to have been exacerbated by lenders tightening their criteria again in the wake of the renewed market volatility caused by the collapse of Lehman Brothers.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "Interest rate cuts and falls in inter-bank lending has not yet encouraged activity to rise in the UK mortgage market.

"First-time buyers and homeowners alike are still struggling to buy a property as banks are still requesting sizeable deposits, further stagnating the property market. This will continue unless banks begin to loosen up on lending conditions."

But on a brighter note, the Bank of England figures showed that the number of mortgages approved for house purchase has remained stable for the past four months.

Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level. The lending figures came as data from property intelligence group Hometrack showed house prices in England and Wales dropped by 1.1% during November.

But the group said there were signs that sales volumes may be close to their floor, with the market now consisting of a relatively small number of committed buyers able to access finance, and needs-based sellers who were pricing their homes more realistically.

However, Ed Stansfield, property economist at Capital Economics, said: "It is hard to see a recovery in the housing market gaining traction any time soon. Indeed, as the economic downturn gathers pace, 2009 may well be an even tougher year for the housing market than 2008."

The Bank of England figures also showed an increase in unsecured borrowing, with lending through credit cards, overdrafts and loans rising by £844 million in October, up from the previous month's very weak increase of £345 million. But the figure was still slightly below the recent six-month average, and less than half the £1.79 billion borrowed in October 2007.

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