Consumers hoping to get on the property ladder this year may struggle to secure mortgages after official figures show that banks are not lending as much as they have in the past.
Figures from the Bank of England show the number of new mortgage approvals fell by nearly 7% in November to 83,000 from 89,000 in October.
Banks only approved £11.4 billion worth of new mortgages in November, down from £12.4 billion in October. This is the lowest monthly figure since 2005.
However, the number of remortgages rose by over 7% in November to 88,000 representing £11.7 billion.
The figures come as lenders admit that more borrowers will struggle to secure mortgages over the next few months as their collective appetitefor lending continues to wane.
In a Bank of England survey about credit conditions, conducted between November and December, lenders reported a significant reduction in the number of mortgages and other secured loans they were prepared to lend over the previous three months. They also warned that a loss of appetite for lending across the board meant the availability of mortgages would be reduced in the first quarter of this year.
Those with poor credit histories or those who have small deposits are the most likely to be turned down for mortgages as lenders say they have not only tightened credit scoring but also reduced loan-to-value amounts.
But borrowers looking to remortgage may have better luck. Lenders confirm demand for remortgaging has increased over the past three months and will continue to rise moving forward.
Borrowers seeking unsecured loans such as credit cards are also likely to struggle between now and March. Lenders responding to the Bank of England survey said they have already made it harder for consumers to take out credit cards, and expect this trend to continue into 2008.
Lenders say the reason for the reduction in available credit is largely down to the credit crunch, which has sparked a lower appetite for risk and concerns about the economic outlook.
Following the warning of rising insolvencies in 2008, lenders responding to the Bank of England survey say default levels for mortgages and secured loans haven’t changed much since the credit crunch hit in September.
However, they report higher losses on loans in default and expect default rates to increase over the next three months.
Trade body the Council of Mortgage Lenders says current market conditions mean gloomier sentiment among lenders is to be expected.
It forecasts a slower market in 2008 with a "potentially significant" reduction in consumer demand for lending.
But there could be a light on the horizon for some borrowers. Bob Pannell, head of research at the CML, says: "This may increase the chances of interest rate cuts sooner rather than later if inflation remains subdued."
The Bank of England, which will meet to discuss interest rates on 10 January, has already hinted that it may slash rates by a further 25 basis points this month.