Mortgage lending remained at record lows last month, with Britain's beleagured housing market showing little signs of any recovery.
While the level of gross mortgage lending fell just 2.7 per cent between June and July, total advances remained more than 25 per cent down on the same month last year.
The British Bankers' Association said gross lending was £14.6bn, down from £15bn in June. The number of loans approved for house purchases actually increased marginally between June and July, from 22,369 to 22,448. However, this is still down some 65 per cent on July last year.
"The monthly numbers of approvals for house purchase, which have fallen by some two-thirds over the last year, levelled off in July," said David Dooks, the BBA's statistics director. "It would, however, be premature to think that the housing market will now start to recover, because overall approval activity continues to be very low. The pressures on household budgets are reflected in the relatively weak rise in individuals' deposits and, with consumer borrowing growing only slowly it seems that consumers are acting prudently."
Allan Monks, of the economic and policy research team at JP Morgan, said that while the figures showed a glimmer of hope for the housing market, mixed messages from the Treasury over the deferral of stamp duty would probably hold back the prospect of any immediate recovery.
"This still leaves approvals at a record low, down around 70 per cent from the peak in late 2006," said Mr Monks. "But the BBA data for July offers some evidence that a bottom is appearing in the market after the extraordinary slide in activity. The scope for a quick recovery, though, is likely to be constrained by expectations that the Government is planning to allow some prospective home buyers the option to defer stamp duty payments on new purchases.
"We continue to anticipate a modest recovery in house purchase activity [in the second half]. But the still very low level of approvals points to falling house prices – we currently expect an 18 per cent drop by year end, and a further 9 per cent decline by the end of 2009."
The buy-to-let market also continued to decline over the first half, with the number of new loans falling 14.6 per cent compared with the same period last year, according to the Council of Mortgage Lenders. However, the decline has been slower than in the owner-occupier market, and the overall number of buy-to-let loans has continued to grow, suggesting that predictions of a mass sell-off in the sector may be premature.
Michael Coogan, the director-general of the CML, said: "The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers. However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now."
Melanie Bien, a director of the independent mortgage broker Savills Private Finance, said: "Savvy investors are waiting until the bottom of the market has been reached before extending their portfolios. I would expect to see an increase in activity again towards the end of next year when they feel there are bargains to be had.
"While the average maximum loan to value has declined slightly, investors seem to be coping still. Repossessions and arrears are lower than in the mainstream market, although there may be some enforced sales among novice landlords next year if they can't afford the higher costs when they remortgage."