Mortgage lending slumps 70 per cent

The housing slump seems set to worsen after official figures revealed yesterday that mortgage lending dived by nearly 70 per cent in October. The Bank of England's latest report on the mortgage market revealed that net lending on homes, which strips out redemptions and repayments, reached just £459m during the month, the second lowest figure recorded by the Bank of England since it began to collect data in this format in 1993.

At 32,000, the number of new mortgages was also at a low, down on the 33,000 seen in September, and a disastrous showing when set against the 72,000 a month they were running at, at the end of 2007. Just 460,000 mortgages have been approved over the year to date – compared with 1,098,000 over the same period in 2007. The credit crunch has long choked off the supply of lending to the market, and there is now increasing evidence that the falls in house prices seen recently – running at about a 15 per cent annual rate of decline – are also depressing demand for mortgages.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "Interest rate cuts and falls in interbank lending have not yet encouraged activity to rise in the UK mortgage market. First-time buyers and homeowners alike are still struggling to buy a property as banks are still requesting sizeable deposits, further stagnating the property market."

The Bank of England figures also showed an increase in unsecured borrowing, with lending through credit cards, overdrafts and loans rising by £844m in October, up from the previous month's very weak increase of £345m. But the figure was still slightly below the recent six-month average, and less than half the £1.79bn borrowed in October 2007.

Rivals reacted with scepticism to Royal Bank of Scotland's pledge to give struggling mortgage borrowers six months before repossessing homes. Lloyds TSB said it was curious that RBS thought the plan newsworthy because Lloyds rarely seizes a property before six months and usually waited much longer before taking action.