Mortgage lending slumps even further

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The Independent Online

The rate at which mortgage lending is falling has accelerated as the credit crunch tightens its stranglehold on the market, figures showed today.

Banks and building societies advanced a total of just £23.8 billion during June, the lowest level since February 2006, the Council of Mortgage Lenders said.

The figure was also 3 per cent lower than the amount lent in May and 32 per cent down on advances in June 2007.

More significantly, the total was the lowest figure for June, which is traditionally one of the busiest months for the housing market, since 2003.

The CML said total lending volumes had declined by only 1 per cent during the second quarter of the year compared with the first.

But it added that an increase would typically be expected during the spring, when the property market usually picks up steam.

It said the year-on-year decline was also gathering pace, with lending volumes during the second quarter 21 per cent lower than during the corresponding period of the previous year, while during the first quarter they had been just 11 per cent down.

CML director general Michael Coogan said: "Market activity during a traditionally busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand.

"While by historic comparisons we still have had a good level of gross lending, new net lending has been constrained in 2008 and this picture will continue for the rest of this year."

Lending levels are expected to remain low for the foreseeable future, with other indexes reporting depressed figures for mortgage approvals.

Mortgage lending is being hit by a double whammy of the downturn in the housing market and the problems in the mortgage market caused by the credit crunch.

A steep fall in the number of homes changing hands, with transactions running at around half the level they were a year earlier, has hit lending for house purchase.

At the same time, tighter lending criteria and high mortgage rates, as lenders pass on their own higher costs to borrowers, has reduced the incentive for people to remortgage, with many people sitting on lenders' traditionally uncompetitive standard variable rates until the market improves.