No let-up yet in mortgage squeeze

Sales may fall by nearly half this year

There has been no let-up in the mortgage squeeze, according to the latest figures from the Council of Mortgage Lenders (CML).

Gross mortgage lending in May was £25.5bn, 2% lower than in April and down by 19% on May last year.

The CML said there was no sign yet of conditions easing and mortgages becoming more easily available.

Earlier, the Halifax, the UK's biggest lender, predicted that house sales would fall by 45% this year.

"The next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed," said Michael Coogan, the CML's director general.

"We still await first signs of the Bank of England's special liquidity scheme indirectly helping to ease the current logjam," he added.

Slump

Mortgage lending reached a record peak last summer, as house prices reached the last lap of a decade-long boom.

Prices, lending and transactions then swiftly collapsed in the wake of the international credit crunch, as banks and other lenders found it very difficult to raise mortgage funds on the financial markets.

Now borrowers are having to delay their house purchases, put down bigger deposits or pay more in the form of higher interest charges.

As a result, all commentators are predicting that 2008 will see an unprecedented slump in the number of residential property transactions that go through.

The CML recently forecast that sales would be down by 35%, the Royal Institution of Chartered Surveyors has predicted a 40% fall, and now the Halifax has said it believes the drop will be even bigger.

More expensive

Lenders have been hoping that the Bank of England's efforts to free up inter-bank lending would lead to a greater availability of wholesale funds for lenders to tap into.

So far, there has been no sign of the Bank's efforts having any effect, and the recent trend has been for mortgage interest rates on new deals to become more and more expensive.

Earlier this week, the financial information service Moneyfacts calculated that fixed-rate mortgages were now at their most expensive for a decade, with the average two-year fix now costing 6.75%.

Howard Archer, chief economist at Global Insight, said: "Very low housing market activity seems certain to feed through to further depress already markedly weakening house prices."