Page last updated at 16:32 GMT, Tuesday, 29 July 2008 17:32 UK

Mortgage loans reach 'record low'

Door keys
The figures are the latest to show a slowdown in the housing market

The number of new mortgages approved for house purchases has fallen to its lowest level since current records started, Bank of England figures show.

The number of home loans approved in June fell to 36,000, down from 41,000 in May, as the slowdown continued.

The increase in total mortgage lending was also lower than many analysts had predicted, rising by 3.1bn in June.

The figures were released as a report for the Treasury outlined various options to revive the mortgage market.

Lack of supply

The number of home loans approved has now fallen for 14 consecutive months, the Bank's figures show, and the figure is at its lowest since the Bank began reporting the data in its current form in 1999.

The credit crunch has reduced the availability of mortgages, especially to those house hunters who are unable to offer a large deposit.

But in recent weeks the cost of deals to new borrowers has been cut by a number of lenders, reversing the previous trend of rising interest rates on new fixed-rate home loans.

Unless the authorities take steps to restart the mortgage market... there will be more bad news in store for the both the housing market and the retail sector
Simon Rubinsohn
Royal Institution of Chartered Surveyors

House prices, however, have continued to drop, according to most surveys, with the Land Registry the latest to register a fall in property prices in England and Wales.

Willem Buiter, a former member of the Monetary Policy Committee at the Bank of England, forecast further big falls in house prices.

"I expect prices to fall on average by about another 20% or so, bringing the cumulative decline from the most recent peak to around 30%," he said in a blog on the Financial Times website.

An assessment of the outlook for mortgage finance was published on Tuesday by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.

One of the options outlined is for the taxpayer to guarantee to billions of pounds of mortgage market bonds to kick-start lending again.


The Bank said that the number of loans approved for house purchases in June was 69% down on the same month in 2007 and 12% down compared with May.

In terms of the housing market, things could get worse before the Bank of England cut [interest] rates, given its focus on inflation
Vicky Redwood
Capital Economics

The number of homeowners remortgaging had also fallen, down to 84,000 in June compared with 90,000 the previous month.

Total mortgage lending showed its weakest rise for eight years, the Bank said.

The figures also revealed how much consumers were borrowing on credit cards and other loans and advances.

The amount of lending by financial groups on credit cards grew by 0.4bn in June, a smaller rise than in May. Lending on other loans also rose by 0.4bn, which was also a smaller rise than in June.

The mortgage market figures could have a knock-on effect on the High Street, according to Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.

"Against this backdrop, it is not surprising that the High Street appears under increasing pressure with consumers scaling back purchases of a range of household goods," he said.

"Unless the authorities take steps to restart the mortgage market, the likelihood is that there will be more bad news in store for the both the housing market and the retail sector during the latter part of the year."

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Interest rates

The depressed state of the housing market was also shown by figures released by the Building Societies Association.

Robert Peston
The tenor of Sir James Crosby's report suggests that there would be significant risks to the health of the economy from doing nothing
Robert Peston
BBC business editor

It said net mortgage lending by societies was down from 8.4bn in the first six months of 2007 to 3.4bn in the same period in 2008.

Analysts said the latest mortgage figures signalled further falls in house prices in the coming months.

Vicky Redwood of Capital Economics said she did not expect the Bank of England to cut interest rates soon.

"In terms of the housing market, things could get worse before the Bank of England cut rates, given its focus on inflation," she said.

And George Buckley, chief UK economist at Deutsche Bank, said: "Even if they [mortgage approval figures] don't fall any further, these numbers are consistent with house prices continuing to fall quite rapidly."

Mortgage approvals graph

Earlier stories said that new mortgage approvals for house purchases were at their lowest level since 1993. The Bank of England has clarified the historical comparison because it changed its method of collecting data between 1993 and 1999.

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