The slump in mortgage lending is gathering pace
The credit crunch has led to a further slump in mortgage lending by the UK's biggest banks.
The British Bankers' Association (BBA) said there were just 35,417 new mortgages approved for house purchases in March, 18% lower than in February.
That was also 46% down on March last year and was the lowest monthly figure since September 1997.
A BBA spokesman said that all forms of lending, not just mortgages, were being restricted by the lack of funds.
"The consequences of low banking sector liquidity show up clearly in March data; reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals," said David Dooks of the BBA.
"Pressures on personal finances are also constraining demand, not only for mortgages, but also for personal loans and borrowing on cards."
The total value of the mortgages approved for house purchase, which now make up just 27% of all new home loans being approved, was 44% lower than in March last year.
The BBA's members account for about 70% of all mortgage lending in the UK.
Their latest figures show the dramatic effect of the credit squeeze, which has made banks wary of lending to each other and which has led in turn to funds for fresh mortgage lending drying up.
As well as the continuing slump in the number of mortgage approvals for homebuyers, a fall in the value of the funds actually being lent is now showing through.
The BBA said that in March the gross value of all new mortgages handed out that month, including re-mortgages and equity withdrawal, was 15% down on a year ago.
That is likely to continue as approvals for re-mortgaging and equity withdrawal also fell in March.
Taken together, the total number of all types of mortgages approved fell to 129,300, the lowest level since September 2000.
However Ray Boulger, of the mortgage brokers Charcol, said lending by the banks alone was not indicative of the whole market.
"I think the proportion of lending by the building societies is significantly higher than last year."
"They will have taken a much bigger share in the last quarter of 2007 and the first quarter of this year," he added
Earlier this week, the Bank of England announced plans to inject at least an extra £50bn into the banking system to free up frozen interbank lending.
This extra money will not be used directly to fund fresh mortgage lending.
However, the banks and the authorities hope that as lending between financial institutions becomes easier, more money will be made available to borrowers in due course.
"The tightening in the credit crunch is continuing to take its toll on the residential property market," said Simon Rubinsohn of the Royal Institution of Chartered Surveyors.
"The Bank of England's latest 'swap' arrangement with the banking sector should help provide a little more liquidity for lenders, but is not going to turnaround the current challenging environment overnight," he added.
If the mortgage market improves, lending is unlikely to be on the more generous terms that were being offered up to the end of last year, such as loans worth 100% or more of a property's value.
As a result, minimum deposits of 10% are likely to become the norm for the foreseeable future, along with higher rates of interest for fixed and tracker-rate loans.