New mortgage lending drops to three-year low

New mortgage lending dropped to a three-year low in August as falling house prices and an uncertain economic outlook continued to scare buyers away from the housing market.

According to figures from the Council of Mortgage Lenders (CML), £21.8bn was lent in August, down by 12 per cent on the previous month, and down by 36 per cent on August last year.

First-time buyers made up about 10 per cent of the total, with most of the money accounted for by people remortgaging after coming to the end of their short-term deals.

House prices are now falling at their fastest rate since the crash of the early 1990s and, according to Nationwide Building Society, have fallen by 10.5 per cent over the past year.

Although the Government recently announced measures to try to boost the housing market – including raising the nil-rate stamp duty threshold from £125,000 to £175,000 – these are expected to have little effect on the market while the credit crisis continues.

The CML's director general Michael Coogan said: "These figures reflect the heightened uncertainty for both lenders and consumers in the mortgage market at present. Lenders are uncertain about future sources of funding and the cost of funding, while consumers are unsure about how much further and for how long house prices will continue to decline."

Consumer groups voiced concern that Lloyds TSB's takeover of HBOS would leave banking customers with less choice and less competition. The combined group will have a 28 per cent share of the UK mortgage market. The Government waived competition concerns aside yesterday, in the interests of securing stability in the banking sector.

"Between these two giants of British banking they control six major mortgage brands – Lloyds, Cheltenham & Gloucester, Halifax, Bank of Scotland, BM Solutions and Intelligent Finance," said Louise Cuming, head of mortgages at the comparison website moneysupermarket.com. "We need to wait and see how many of these survive the merger. Obviously if some of these disappear, customer choice and competition will be eroded, which can only be to the detriment of borrowers."

Melanie Bien, director of the independent mortgage broker Savills Private Finance, said the deal was unlikely to have any short-term effect. "The various brands will continue as before as it will take some time for Lloyds to make economies of scale," she said.

"It worked well for HBOS over the years so there is no reason why Lloyds would need to do much tweaking, apart from to reduce the number of branches and duplications of services, which will inevitably happen."