Mortgage approvals by UK banks fell to record low in December

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Mortgage approvals fell to a record low in December as the credit crunch ate into the major banks' ability to lend and cash-strapped customers grew wary of debt, the British Bankers' Association said yesterday.

Banks approved 42,088 new house purchase loans last month, 38 per cent behind the comparable figure from December 2006 and the lowest figure since the BBA began tracking mortgages a decade ago. Gross mortgage lending was weak at £15.1bn, behind £16.5bn in November and 22 per cent below December 2006, while the overall value of mortgages approved fell 10 per cent behind last year, to £16.5bn last month.

The seasonally adjusted figure for net mortgage lending was also disappointing, at £4.7bn, marginally ahead of the £4.6bn figure for November and below the six-month average of £5.2bn.

The BBA data, which was derived from major retail banks such as Alliance & Leicester, Barclays, HSBC and HBOS, confirmed last week's statistics from the Council of Mortgage Lenders. Based on figures from a wider sample which included building societies, the CML said that the December gross lending had declined to an estimated £22.6bn, the lowest monthly figure since May 2005.

Howard Archer, chief UK and European economist at Global Insight, said that the "markedly reduced housing market activity is now weighing down significantly on house prices", and added: "On the one hand, house buyers are being pressurised by elevated house prices, modest real disposable income growth and the significant overall rise in mortgage rates since August 2006. On the other hand, the credit crunch and sub-prime mortgage concerns mean that lenders have become much more careful whom they lend to, and on what terms."

Olive Gilmartin, the senior economist at the Royal Institute of Chartered Surveyors, also noted the impact of tougher lending conditions. "Banks have sought to rebuild profit margins by raising borrowing costs whilst the supply of loans from specialist lenders has fallen dramatically," he said, "A more sluggish mortgage and housing market is set to continue in the near term."