Page last updated at 14:09 GMT, Tuesday, 23 December 2008

Mortgage lending 'shrinks again'

For sale signs
House prices have plunged during the last year

UK mortgage lending by the major banks has fallen sharply, with approvals for house purchases 60% lower than a year ago, figures show.

The number of mortgage approvals for house purchases fell by 14% in November to a new low of 17,773, according to the British Bankers' Association (BBA).

People remained worried about the effect of the slowing economy on their personal finances, the BBA said.

As a result, the amount consumers are borrowing also remained subdued.

The number of people re-mortgaging but staying in their existing home also dipped significantly in November, with homeowners unable to find a better deal to switch to.

This fell to 29,798, almost half of the 52,452 of the previous month, and the lowest for eight years.

All change

Mortgage lenders withdrew a number of deals from the market and assessed what they were offering in November after the shock 1.5 percentage point cut in interest rates by the Bank of England.

17,773: Number of mortgages approved for house purchases
60.7%: Fall in these approvals compared with a year ago
117,000: Average mortgage for home-movers in November
Source: BBA

Potential buyers also held off to see what effect the Bank rate cut would have, the BBA said.

With house prices still falling and people waiting to see whether mortgages would get significantly cheaper, activity in the mortgage market remained stagnant.

"People remain concerned about the impacts of the rapidly slowing economy on their personal finances," said BBA statistics director, David Dooks.

Liberal Democrat Treasury spokesman Vince Cable said that the figures showed there was a "very serious problem" with mortgage supply.

"It is understandable that people are not willing to buy in a falling market but the figures suggest that there are people who would buy if mortgages were available on reasonable terms," he said.

"The government and the mortgage industry will have to come up with ideas on how to restore responsible lending."

The Conservatives claimed the bank bail-out package was failing to revive the housing market.

House sales

With prices falling and banks demanding a bigger deposit from buyers, the average amount borrowed by home-movers has also been falling.

In November, the average amount borrowed was 117,000, down nearly 24% on a year ago.

The trends showing a lack of activity in the housing market, reported by the BBA, were confirmed by the latest provisional figures for November from HM Revenue & Customs (HMRC).

Its seasonally adjusted figures showed that residential property sales were down in November to 53,000 in the UK. That is lower than the previous month and 60% down on the same month a year ago.

Iceland effect

Other borrowing ahead of Christmas also remained relatively subdued.

Growth in credit card borrowing was in line with the recent average, with the annual rate of growth up to 7.9%. Borrowing on overdrafts and personal loans was low, the BBA said.

But the amount of money being saved with the UK's major banks shot up in November.

Personal deposits in UK banks went up by 3.9bn in November, having been at a monthly average of 600m during the previous six months.

The BBA suggested this reflected, in part, people receiving compensation for their savings lost in the collapsed Icelandic banks and putting that money into UK bank accounts.

Products offered by High Street banks attracted funds by savers, the BBA said.

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