The number of borrowers being approved for new mortgages has fallen by 64% over the past 12 months as the credit crunch continues to hit banks’ ability to lend money.
The latest figures from the British Bankers' Association (BBA) show just 21,086 mortgages were approved for house purchases in August, down from 58,564 in the same month last year.
David Dooks, statistics director at the BBA, says falling property prices, economic uncertainty and anticipation of the government's announcement on stamp duty are all to blame for the low levels of mortgage activity during the month. And despite the government finally taking action on stamp duty, he says the situation is unlikely to improve anytime soon.
Philip Hammond, the Conservative Party’s shadow chief secretary to the Treasury, has also blamed the government's “dithering” over stamp duty for low levels of activity.
“In the week that Gordon Brown attempts to save his job, these figures are a timely reminder of his damaging dithering over stamp duty,” he says. “With mortgage approvals now at record lows, the effects of his economic incompetence are now clear for all to see – with would-be homeowners left to pick up the pieces.”
The Conservative Party describes the housing market as being in “freefall”, hit by stretched valuations, the credit crunch, and a lack of consumer confidence. Hammond adds: “The housing market is unlikely to recover sharply after the cut in stamp duty was announced in September.”
The figures have prompted new calls for the government to take action and help banks get new funding that will enable them to loosen their lending criteria.
Peter Rollings, managing director of estate agent Marsh & Parsons, says: “This should be a serious wake up call for the government, the Financial Services Authority and Bank of England. We’re really starting to see how bad the situation could get if we continue to rely solely on market forces to get the housing and mortgage markets moving again.”
Meanwhile, new research from data provider Moneyfacts suggests that the number of mortgages available for borrowers with a deposit of 10% or less continues to dry up with 45% fewer deals on the market than this time last year.
Darren Cook, mortgage expert at Moneyfacts, says: "This time last year, 74.2% of the mortgages were available for borrowers with a deposit of 10% or less - today that has dropped to 29.2%. [Today] Lenders are focusing much more on risk.”
In the past few days, Northern Rock and Yorkshire Building Society have increased the rates of their 10% deposit mortgage deals, and as house prices continue to fall the fear is more lenders will penalise borrowers without large deposits.
Cook adds: "The fallout from the Lehman Brothers collapse will inevitably affect mortgage rates in the UK, particularly as swap rates [the interest rates on money banks lend to each other] continue to increase. However, it is too soon to attribute any rate increases to this as yet.
"The effect will start to be seen in the coming weeks, as lenders revise rates, get them approved internally and marketed through branches."