The fragile state of the housing market was emphasised yesterday by figures showing another sharp fall in mortgage lending by the high street banks in July. New loans made by the banks for house purchase fell by a fifth during the month.
Tim Sweeney, director general of the British Bankers' Association (BBA), said: "Even by recent standards July was a very poor month."
The continuing evidence of housing-market weakness is expected to weigh heavily with Kenneth Clarke, the Chancellor, at his monthly meeting next Thursday with Eddie George, Governor of the Bank of England. Mr Clarke is not expected to cut base rates from their current level of 6.75 per cent next week. But the new consensus in the City of London is that interest rates will not rise much further.
"Nobody really thinks there is a need for another base-rate rise," Steven Bell, chief economist at merchant bank Deut-sche Morgan Grenfell, said. However, he cautioned against hopes for a reduction in rates before the November Budget.
The BBA's figures, covering 8 of the country's 20 biggest mortgage lenders, showed that net new housing loans amounted to pounds 367m in July. This was 20 per cent down on the previous month. Total gross loans in the month were 13 per cent lower than a year earlier, at pounds 1.6bn.
Mr Sweeney said there was limited comfort in the fact that the number of new mortgages approved had edged up in July. The number, at 29,378, returned to its highest level since March and was 2 per cent higher than a year earlier.
There was a far smaller rise in the value of the loans approved as the average new mortgage approved by the banks fell from pounds 51,000 in June to pounds 49,600 in July. This was 5 per cent lower than a year earlier.
The big banks' gloomy figures confirmed recent evidence from building societies. New mortgage lending by the building societies fell to pounds 729m in July from pounds 1.3bn the previous month. The number of mortgages approved by them fell from 50,000 to 43,000 in July.
Frank Dobson, Labour environment spokesman, held a news conference to condemn the "Tory betrayal of homeowners", claiming that the Conservatives were the party of repossessions, mortgage arrears and negative equity. Although repossession figures have fallen from their 74,000 peak in 1991, he said they were rising again.
A Conservative Party spokesman rejected his figures: "Since 1979 millions of people have become homeowners who would never have had the opportunity under Labour - who opposed the sale of council houses and defend the days of mortgage queues."
Mr Dobson dismissed as "short-term nostrums" proposals floated in government circles to revive the housing market. He rejected the idea that pension funds could be used to pay for long-term nursing care - a move aimed at worries about the elderly being forced to sell their homes, which further weakens the market. The Prime Minister is expected to press for the plan in the November Budget.