Housing slowdown prompts slump in mortgage approvals

The number of mortgages taken out by British home-buyers collapsed to a record low in March, according to the British Bankers' Association, amid continuing concern about a slowdown in the housing market and a lack of supply of home loans. The BBA said that mortgage approvals for house purchase slumped nearly 50 per cent on a year ago to their lowest level since the current statistical series began in 1997.

Some 35,417 new mortgages were approved last month, with a value of £5.6bn, both well down on the normal level of business and the 43,147 mortgages worth £6.8bn approved in February.

Last week, the Council of Mortgage Lenders (CML), which includes building societies and specialist lenders as well as the major banks, reported mortgage lending in March was almost a fifth down on the same month last year. Overall, taking into account re-mortgaging and equity withdrawal schemes, the BBA say that the value of property-backed lending was down by 15 per cent – the lowest level since 2000.

The BBA's figures confirm a welter of recent data indicating that the British property market is cooling fast. The average of the Nationwide and Halifax house price indices showed a decline in real estate values of 1.5 per cent in the first quarter of the year, while estate agents are reporting slow business and repossession and arrears are on a rising trend.

The BBA put the blame for the slump in lending firmly on the credit crisis. "The consequences of low banking sector liquidity show up clearly in March data; reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals," said David Dooks, BBA's director of statistics. "Pressures on personal finances are also constraining demand for personal loans and borrowing on cards."

The Bank of England announced a £50bn mortgage swap plan for banks on Monday that it hopes will ease the credit crisis and allow the banks to resume lending. The BBA said this "will help" but warned it was impossible to quantify how quickly or by how much the cost of borrowing would come down.

The CML said that the bank scheme should be "only the starting point", but that the funds should start flowing through the mortgage market "shortly". The Bank of England's agents' summary of business conditions – a qualitative poll of the banks' representatives throughout the country – also suggests that the credit crisis is resulting in declining investment, especially in the service sector, and commercial property. Housing demand, said the Bank yesterday, "remained weak" while "home builders had accumulated unwanted stock and were discounting heavily".

As for established homes, the Bank's agents said: "Estate agencies reported that enquiries were well down on a year ago. Given the resultant excess supply, sale periods were unusually long. There was a rise in the cancellation of sales, attributed to tighter credit conditions."

The most pessimistic observers believe the UK property market will decline by around 20 per cent over the next two years.