Mortgage lending slumps to two-year low

Mortgage lending slumps to two-year low

The rate at which mortgage lending is falling has accelerated as the credit crunch tightens its stranglehold on the market, figures showed today.

Banks and building societies advanced a total of just £23.8bn during June, the lowest level since February 2006, the Council of Mortgage Lenders (CML) said.

The figure was also 3% lower than the amount lent in May and 32% lower than June 2007 when £34.9bn was lent.

The CML said the decline between the first and second quarter was marginal, but the spring period would normally be expected to show an increase.

The year-on-year decline has also gathered pace in recent months, the figures showed. Lending in the first quarter of the year was down 11% on 12 months earlier, while the second quarter was down 21%.

CML director general, Michael Coogan, said: "Market activity during a traditionally busy time of year has been muted by funding shortages and, more recently, dampened consumer demand.

"While by historic comparisons we still have had a good level of gross lending, new net lending has been constrained in 2008 and this picture will continue for the rest of this year."

He added: "Government efforts to help housing associations purchase new-build properties and borrowers to save for a deposit are welcome, but are likely to have only a marginal impact on the housing market.

"Borrowers on tight budgets will have to plan ahead to manage higher mortgage payments than.....continued below

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they have been used to. Speak to your lender early remains the advice for anyone struggling to pay."

Restricted deals

Howard Archer from Global Insight said very tight credit conditions had led to markedly fewer and more expensive mortgages being available.

"Although some fixed-rate mortgage rates have been trimmed, they are still up significantly overall in recent months. Furthermore, potential house buyers now have to provide higher deposit levels, which is a particularly major problem for first-time buyers. On top of this, arrangement fees have risen sharply."

Lenders have started to cut their rates in recent days following a fall in wholesale funding costs, but the best deals are still being targeted at borrowers with large deposits, making life difficult for first-time buyers.

Earlier this week, lenders asked the government for more help on top of the £50bn funding scheme announced in April.

They said speed was of the essence if the problems for households and the housing market were to be eased.

guardian.co.uk © Guardian Newspapers Limited 2008