Loans left languishing as interest rates take their toll

Mortgage lending fell by 6 per cent in August as would-be homebuyers' finances were stretched by higher UK interest rates.

The Council of Mortgage Lenders reported that gross advances during the month totalled £32.2bn, against £34.1bn in July. Year-on-year, mortgage lending was down 3 per cent.

Next month's figures may well show a further drop as they will include the period of the Northern Rock crisis.

The decline comes hot on the heels of surveys from the Royal Institution of Chartered Surveyors and property website Rightmove, indicating that the market is slowing and house price inflation going into reverse.

Meanwhile, the Building Societies Association (BSA) said its members had seen record amounts flowing into savings accounts. In total, £1.4bn was paid in during August – £1bn more than the same month last year and nearly double the figure for July.

"This is the highest August figure ever and the highest monthly figure since April 2005," said Adrian Coles, director-general of the BSA.

"We believe that successive increases in rates and subdued equity markets have encouraged savers to put more money away. We expect this to continue while rates stay high and people recognise the wide range of good-value society savings products."