Home loans collapse 90% to record low

By IAN LYALL FOR MAILONLINE
Updated:

Net mortgage lending has contracted 90 per cent in the past year, it emerged yesterday.

The Bank of England figure, which covers the amount by which lending outstrips redemptions and repayments, was a paltry £690million last month, down from £6.91billion a year earlier.

It was the lowest monthly total recorded by the Bank since it started collating the data in 1993.

Net mortgage lending is down to just 10 per cent of what it was last year, new data reveals

Net mortgage lending is down to just 10 per cent of what it was last year, new data reveals

Estate agents have reported a modest rise in enquiries from would-be buyers, but with home loans still in very short supply, economists warned conditions may get even worse.

Howard Archer, chief UK economist at Global Insight, said: 'Although housing market activity may well now have bottomed out, it is still at an extremely low level which suggests that further significant falls in house prices are highly likely.'

The latest statistics from the Building Societies Association painted an even gloomier picture as they revealed homeowners repaid £491million more than they borrowed in January.

Simon Rubinsohn, of the Royal Institution of Chartered Surveyors, blamed risk averse lenders.

He said: 'This disconnect between buyer inquiries and mortgages approved highlights the inability of many buyers to access the property market at the present time because of the substantial deposits being sought by lenders.'

This has been exacerbated by house price falls of more than 20 per cent that have eroded the equity that people have in their property.

Deep interest rate cuts have failed to breathe life into the ailing property market.

With borrowing costs tipped to halve to an all-time low of 0.5 per cent on Thursday, the BoE may have to resort to more extreme measures to get cash out of bank vaults and back into the mortgage market.

Governor Mervyn King has written to Chancellor Alistair Darling to ask permission to begin quantitative easing - creating cash to inject into the money supply.

Last month saw total mortgage advances slump to £13.64billion, a level last seen in July 2001.

It also saw cases of remortgaging continue to fall to just 34,000, less than half the 72,000 who switched home loans in October.

The drop is likely to be the result of lower rates making it cheaper for many to stay on their lenders' standard variable rate, rather than take out a new mortgage.

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