Mortgage lending was 49 per cent lower in 2008 than in 2007, according to new figures from the Council of Mortgage Lenders (CML).
In 2008, there were 516,000 house purchase mortgages approved, nearly half what there was the year before, and the lowest level of annual activity since 1974.
December saw the lowest level of new purchase mortgage
lending since monthly records began in 2002, and five per cent lower than November.
While lending remains tight, encouraging or forcing borrowers to stay with their existing lenders, the number of homeowners approved for a remortgage
deal was also down markedly at the end of 2008. Figures fell 26 per cent from November to December, when there were 40,000 loans approved.
The value of mortgages for house purchase was down 55 per cent in December 2008 compared to the previous year, at £4.3billion, while the value of remortgage deals was down 29 per cent to £5.5billion.
First time buyers have perhaps been the hardest hit by the effects of the credit crisis on the mortgage market. With tighter lending criteria and demands from lenders for substantial deposits, they have largely been frozen out of the market.
December 2008 saw 12,100 first time buyer mortgage
approvals – 46 per cent fewer than at the same time the year before, and another record low since the CML started collating monthly data.
In light of mortgage lenders
offering lower loan to value (LTV) deals, first time buyers scraped together an average deposit of 22 per cent of the value's property, the highest proportion in 34 years of available data, the CML found.
As the Bank of England has continued to cut interest rates, tracker mortgages
have predictably become increasingly popular, the data shows, accounting for 29 per cent of new mortgages compared to 16 per cent in 2007.
The majority of homeowners are still favouring stability over potential lower monthly payments, however, with 58 per cent of borrowers opting for a fixed rate mortgage
, but this figure was down from 73 per cent in 2007.
"The shortage of mortgage funding and reduction in the number of active lenders has reshaped the mortgage landscape in the space of a year." explained CML
director general Michael Coogan. "This low level of transactions is insufficient for the functioning of an efficient market.
"Measures are now in place to seek to restore the flow of funding to the mortgage market, but this will take time to feed through. Further action may still be necessary to increase transactions, stabilise prices and restore confidence."
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