Home loan approvals are lowest on record

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The "dismal" state of the mortgage market was confirmed yesterday with the release of latest figures from the British Bankers' Association (BBA). The number of mortgages approved by the major banks fell to 21,086 in August, the lowest monthly total since the BBA started collecting the information in 1997, and down about two thirds on the same month last year.

New home loan approvals are running some 12,000 lower than the average of the previous six months. Mortgage lending amounted to £2.1bn in August, less than half the average level of £4.7bn for the previous six months.

The BBA put part of the blame for the slide on the uncertainty surrounding the Government's policy on stamp duty, though they also acknowledged that the demand for new mortgages, as well as the supply, was slipping as house prices drop around 12 per cent a year: "Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government's announcement on stamp duty all suppressed or delayed demand in August," said BBA statistics director David Dooks.

Disappointment about the state of the property market is widespread in the industry. Simon Rubinsohn, the Royal Institution of Chartered Surveyors' chief economist said: "This is not altogether surprising, given that speculation was rife during the month about a possible announcement on stamp duty.

"The subsequent decision by the government to widen the zero band on stamp duty, albeit only temporarily, alongside the introduction of a series of more competitive mortgage products by lenders, should have helped bolster interest in the housing market this month. But these developments are likely to have been overshadowed by concerns stemming from the turmoil in financial markets."

After several weeks of dithering and conflicting signals from Number 10 and the Treasury, the Government announced on 2 September that they would for one year exempt from stamp duty all property transactions worth £175,000 or less. However, many observers believe that the damage had already been done and that, even after recent house price falls and the stamp duty holiday, property remains expensive by historical standards and in relation to depressed disposable incomes.

Michael Saunders, economist at Citi European Economics, commented: "These data fit in with other signs that the UK housing market remains in freefall, hit by stretched valuations, the credit crunch and understandable worries among the general public over prospects for jobs and incomes. "This is a really dismal set of mortgage data," added Howard Archer at Global Insight. "Given these very poor fundamentals, the recently announcedgovernment measures to support the housing market are very unlikely to have any significant impact. We continue to expect house prices to fall by15 per cent in 2008 and 12 per cent in 2009, and see the risks to these forecasts significantly increasing, given the heightened financial sector turmoil and markedly rising unemployment."

According to research from mform.co.uk, an online mortgage company, there are now only 36 deals available directly from lenders to first-time buyers looking to borrow more than 90 per cent of the value of a property.