'Winter chill' sets in as mortgage lending falls by 16 per cent, CML data reveals

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The Independent Online

October brought more bad news for home buyers as mortgage lending plunged 16 per cent, with advisers warning there would be little hope for a recovery early next year.

The Council of Mortgage Lenders (CML) said yesterday that the number of house purchase loans granted had fallen to 46,000 in October, while the value was down 12 per cent to £6.7bn.

First time buyers were most heavily affected, with the number of loans falling a fifth from October 2009 to 17,000, with a value of £2bn.

Eric Stoclet, chief executive at Crown Mortgage Management, said the tight lending criteria "are becoming an albatross for the housing market". He predicted that Christmas would prove far slower for sales than a year ago, adding "the new year looks set to usher in a prolonged winter-chill for the housing market as public sector cuts and a likely interest rate rise put a further squeeze on deposits."

The CML pointed out that the 2009 numbers had been inflated in the final quarter as buyers rushed to close deals before the stamp duty holiday ended.

Michael Coogan, director general of the CML, said following the end of the stamp duty concession "we expected to see a decline in lending year-on-year, so today's figures are not surprising".

He added: "Consumer confidence has also been affected by October's spending review, despite the relative affordability of monthly mortgage payments, and so a stable but small lending market will continue for some time."

Remortgages fell a fifth to 26,000 in October over the previous year. The value was down 24 per cent to £3.1bn.

Mr Stoclet said: "We cannot expect cash buyers to continue to prop up the market. This drought in mortgage finance will force the Government to tread very carefully, as lenders have been restricted by their concern about the cost of repaying their bailout loans."

The news comes as the Royal Institute of Chartered Surveyors said in the UK owner-occupier rates have fallen from 71 per cent in 2003 to 68 per cent. It compared the country with Spain where home ownership remains higher at 82 per cent, but is down 10 percentage points since 2002.

RICS said: "Despite the drop in prices, our judgement is that the combination of tight lending constraints, which look set to persist, and a generally uncertain economic environment points to a further shift in tenure over the next few years, with owner occupier rates continuing to edge lower at the expense of private lettings."

The body is to release housing market statistics for November next week. Howard Archer, chief UK and European economist at IHS Global Insight, said it would be "of key interest" to see whether there was further evidence of fewer properties being put on the market. In October, the survey marked the first decline in houses put up for sale in nine months. "If this marked the beginning of a falling trend of houses for sale, it would provide some support for house prices," Mr Archer said.

He believes house prices will lose 10 per cent next year from the peak levels in 2010. On Thursday, Halifax revealed the average price of a house in the UK fell 0.7 per cent year on year to £164,708.

Separately, the Office for National Statistics revealed that the price of manufactured products was up 3.9 per cent in the year to November, although it marked a decline from the 4 per cent recorded in the year to October.

The body said the index rose 0.3 per cent between October and November mainly reflecting price rises in petroleum products, as well as food, computer and electrical goods.