Page last updated at 10:39 GMT, Tuesday, 9 September 2008 11:39 UK

Mortgage lending steady in July

For Sale signs
Mortgage lending has fallen by more than half in the past year

Mortgage lending steadied in July, according to the latest figures from the Council of Mortgage Lenders (CML).

That month 47,000 new loans were made to home buyers, the same as in June.

However that was still 51% fewer than a year ago, reflecting the slump in mortgage lending due to the international credit crunch.

The CML said first-time buyers were still being squeezed out of the market, having to put down larger deposits and less able to borrow as much money.

"Tighter lending criteria have clearly made it more difficult for first-time buyers to enter the market," said the CML's director general, Michael Coogan.

"The stamp duty and shared equity measures announced by the government last week will be helpful to those first-time buyers looking to enter now, but many may be waiting for house prices to stabilise," he added.

Further to fall

Earlier, the Royal Institution of Chartered Surveyors (Rics) reported that sales over the summer had fallen to their lowest for 30 years, with some estate agents selling fewer than one property per week.

Despite the CML's indication that mortgage lending may have steadied, albeit at very low levels, and recent government attempts to ameliorate the worst effects of the property slump, there are widespread expectations that both sales and prices have much further to fall.

On Monday, the head of the Nationwide building society, Graham Beale, said that prices might end up falling by 25% from their peak seen a year ago.

According to his own society's monthly survey, house prices have only fallen by 10.5% during the past 12 months.

Meanwhile the number of mortgage approvals, which are a good indicator of where actual lending will go, were 71% lower in July than in the same month last year, according to the Bank of England.

Larger deposits

The rationing of mortgage funds gripped the market with fresh vigour in July.

Potential new entrants are being squeezed out of the market

There were 17,300 home loans made to first-time buyers, the CML said, 5% fewer than in June and 48% lower than a year ago.

On average, these borrowers had to put down a deposit of 15% of the value of the property they were buying, compared to 13% in June, and 10% a year ago.

The CML said that deposits of this size had not been required by lenders since the early 1980s.

The average advance to first-timers dropped to 110,000 in July from 119,250 in the same month last year.

"With loan-to-value ratios being scaled back, mortgage finance scarce and the need for larger and larger deposits, potential new entrants are being squeezed out of the market," said Simon Rubinsohn of Rics.

With prices falling, the size of home loans taken out by borrowers overall, including first-timers, also dropped.

The average loan for buying a home dropped to 120,170 in July from 125,000 seen in each of the previous four months.

Buoyant rental market

With some frustrated house sellers becoming both temporary landlords and temporary tenants until the property market picks up, the number of people renting properties has seen a sharp upturn.

The Association of Residential Letting Agents (ARLA) said tenancies had risen by 20% in the last three months.

Demand continues to exceed supply, so rental levels in the past six months have been rising modestly.

"This steady rise in rental growth that we see yet again, coupled to clear evidence that there is no unusual selling, proves once again that the credit crunch effect on the private rented sector exists only in the imagination," said Ian Potter of ARLA.

"This is underlined by the short void periods and length of time that tenants stay in rental properties," he added.

Last month Rics reported that the slump in house sales had forced many more people to become either landlords or tenants.

In July, its members saw new instructions from landlords rising at their fastest rate on record.

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