'Record' low for home loan approvals
Updated on 23 September 2008
Mortgage lending halved during August and the number of loans approved for house purchase slumped to a new record low.
Net mortgage lending, which strips out redemptions and repayments, dived to just £2.1 billion during the month, less than half of July's £4.8 billion, and the lowest level since February 2001.
The British Bankers' Association blamed the slump on the combination of falling house prices, the current economic problems and lenders' tighter lending criteria as a result of the credit crunch.
But the group added that speculation that the Government was going to make an announcement on stamp duty also curbed demand during August as people delayed buying a house in the hope that they would not have to pay the tax.
Chancellor Alistair Darling finally announced in the first week of September that stamp duty would be suspended on properties costing up to £185,000 for a year.
The National Association of Estate Agents on Monday blamed speculation over the future of the tax for a further drop in sales in August, with agents selling an average of just five properties each during the month.
The number of mortgages approved for house purchase continued its downward spiral during August, dropping to a new record low of 21,086, 5 per cent less than in July and 64 per cent fewer than in the same month of 2007, the BBA said.
Remortgage approvals fell for the fourth month in a row, dropping to 47,765, the lowest level since February 2001 and 27.8 per cent fewer than 12 months ago.
Loans approved for equity withdrawal and buy-to-let properties were 35.3 per cent lower than in August 2007.
Howard Archer, chief UK and European economist at Global Insight, said: "The BBA data graphically highlights that housing market activity continues to be throttled by stretched affordability and tight lending conditions.
"Widespread expectations that house prices will continue to fall markedly for some considerable time to come is also significantly limiting housing market activity, as is heightened concern over the economic outlook and job prospects.
"Furthermore, the current financial sector turmoil is likely to deepen the pressure on housing market activity through further tightening credit conditions and exerting upward pressure on interest rates."
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