Mortgage lending fell again during October after the market saw a slight rebound in September, figures showed today.
Net mortgage lending, which strips out redemptions and repayments, was £2.9 billion during the month, down from £3.5 billion in September, according to the British Bankers' Association.
The figure was well down on the £4.73 billion which was advanced during October 2007, and was also the second lowest sum recorded since April 2001.
The number of mortgages approved for house purchase also fell to 21,584, after rebounding slightly from August's record low during September.
The figures come after a Treasury document made public yesterday revealed that new net mortgage lending is likely to fall below zero in 2009.
A report into mortgage financing by former HBOS boss Sir James Crosby suggested repayments and redemptions would outstrip lending during the year.
Sir James said that, in the current economic climate, it would be hard for banks to finance loans.
"Therefore I believe that new net mortgage lending is likely to fall below zero in 2009, with only a modest recovery likely in 2010," he said.
Figures have already shown that in August this year repayments outstripped lending - the first time they had done so since the early 1990s.
Melanie Bien, director of mortgage broker Savills Private Finance, said she was not surprised by Sir James's prediction.
She added: "It is inevitable but it will be a temporary situation.
"It is the pain we have to go through to reach the bottom before starting to come back up again."
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