Mortgage lending falls as rates bite

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Mortgage lending declined for the second month in a row in August, as the effects of five interest rate rises over the previous year continued to take their toll on the housing market.

According to data published by the Council of Mortgage Lenders yesterday, gross lending levels fell to £34bn in August, down from £34.1bn the previous month, and from £34.8bn in June. The number of loans for house purchases fell 11 per cent year on year, although it was up 5 per cent on the previous month.

Lending levels are expected to have fallen again last month, as the credit crunch began to affect the mortgage market. Many banks and building societies raised their tracker mortgage rates last month, as three-month inter-bank lending rates soared to more than a percentage point over base rate.

Many lenders have also pulled back from lending to all but the best credit risks, in the wake of the Northern Rock crisis. This means it is now even harder for first-time buyers to get a foot on the property ladder.

The CML said the proportion of first-time buyers' salaries being spent on interest payments was now at a near 16-year high of 20 per cent.