December saw the lowest level of mortgage lending for nearly eight years with approvals on home loans plummeting 47% since the same month in 2007.
Figures from mortgage lenders reveal that gross mortgage lending was just £12.6 billion in December, down 11% from £14.2 billion in November and down 47% on December 2007. This is the lowest monthly figure since April 2001.
Throughout 2008 lenders only issued loans to the value of £256.4 billion, down 30% from 2007 and the lowest annual figure since 2002. The Council of Mortgage Lenders (CML), which collated the figures, says this downturn is likely to continue with lending unlikely to increase until the second half of the year at the earliest.
The low levels of lending are bad news for house prices, with existing homeowners and first-time buyers alike unable to find new mortgages to purchase property.
Michael Coogan, director general of the CML, says: “December is typically a quiet month in the mortgage market, on top of which the market has been constrained by a shortage of funding and reduced demand.”
However, he is quietly optimistic that the recent package of measures to kick-start the mortgage market could “invigorate new lending” as long as banks’ appetite for lending increases as planned.
But concerns remain about the measures; for example, the Treasury’s insurance guarantees for “bad” debt (which aim to allow banks to sell debt and raise new funding) are only available to a select number of high street banks and building societies that also accept deposits, and will not help specialist lenders.
“A mortgage market solely funded by a few large banks and building societies would be unlikely to have the capacity to match future consumer borrowing demand, or be as competitive in the long-term as the UK market has been before the credit crunch,” Coogan explains. “Increasing the range of active lenders and funding capacity in the market overall is a vital next step.”
Coogan also calls for further measures to help the housing market, including government indemnity guarantees for homeowners with small or no deposit and better support for homeowners facing repossession.
Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, describes the latest figures as “bleak”.
“We can only hope that some of the competitive products and rates that are being released at the moment for higher net worth borrowers with large deposits start rippling through into the mainstream," he adds.