Slump in number of mortgage approvals

The credit crunch took its toll on the mortgage market in January as the number of loans fell 34 per cent from a year earlier and lenders tightened their credit standards.

Figures from the Council for Mortgage Lenders showed that 50,300 loans were made for house purchases in January, a 19 per cent fall from December. The value of £7.8bn was 31 per cent down on January 2007.

Michael Coogan, director general of the CML, said: "The wholesale funding markets remain largely closed and mortgage funding still remains constrained. This is now having a discernible impact on lending criteria and the ability of first-time buyers to get into the housing market."

Banks that had tapped the roaring wholesale funding markets before the credit crunch are reining in their lending. They are demanding bigger deposits and lending smaller multiples of salary. First-time buyers took out average loans for 88 per cent of a property's value in January, down from 90 per cent in December. They typically borrowed 3.32 times their income, compared with 3.38 per cent in December.

The CML figures coincided with Bank of England statistics that showed lenders failing to pass on recent interest rate reductions to borrowers with small deposits. The average rate for two-year fixed mortgages at 95 per cent loan to value was 6.55 per cent, the highest since September 2000, but the cost for 75 per cent LTV loans fell.

The CML said only 39 per cent of first-time buyers avoided stamp duty in January, with 11 per cent caught in the higher bands. Two years earlier, 53 per cent of first-time buyers escaped stamp duty and 6 per cent were in the higher bands. Mr Coogan called on the Chancellor to raise the stamp duty threshold in today's Budget. "While we don't believe there is one silver bullet solution to problems in wholesale funding markets, we welcome the Treasury's recognition of the problem and willingness to work with the industry," he said.