Mortgage lending in August was 63 per cent lower than it was in August 2007, according to figures released by the Council of Mortgage Lenders.
August saw 42,000 house purchase loan approvals, which, at a total lending of £6billion, are the lowest figures since the CML began collecting monthly data in 2002.
Falling house prices and tighter lending criteria are reflected by the fact that first time buyer mortgages
accounted for £1.9billion, less than a third of total house purchase lending, with an average loan of £106,754.
First time buyers borrowed an average of 84 per cent of the value of their home, and 3.18 times their annual income, down from 90 per cent and 3.39 respectively compared to August of last year.
The figures also revealed that the majority of borrowers are still opting for the security of a fixed rate mortgage
, although fixers were down slightly to 58 per cent from 64 per cent in July, while the number of people choosing tracker mortgages
rose, up to 31 per cent in August from 28 per cent the previous month.
"Fixed rates were higher than tracker rates and rose by more from July to August." said CML
director general, Michael Coogan. "Expectations of base rate reductions have also increased, so it is unsurprising to see consumers moving in favour of variable rates."
While Mr Coogan is confident that the rescue plan announced by the Government to bail-out banks and a half percentage point rate cut to ease lending in the money markets will improve conditions, he warns that it will take time for the benefits to feed through to the mortgage market.
But, a reduction in the Libor rate – the rate which banks lend to each other and which therefore determines the cost of borrowing for consumers – has sparked hope that borrowing might become easier in the near future.
The coordinated rate cuts from global economies last week are showing signs of paying off as the Libor fell by 1.6 basis points yesterday. Despite previous attempts to increase liquidity, it had continued to creep upwards the week before, until world banks acted to cut rates and bring stability to their financial systems.
The improvement in the Libor indicates that confidence in the financial system has been somewhat restored, and will encourage banks to lend to each other once again, making borrowing more affordable for mortgage
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