Mortgage lending falls 32% as house prices fall

Hopes for a more stable property market were dashed yesterday as figures revealed the decline is gaining speed, fuelled by tight lending criteria and speculation over stamp duty.

Prices fell by 1.1 per cent in the three months to June this year, up from a 0.1 per cent drop in the previous quarter. Annual house price inflation was down to just 0.6 per cent nationwide in June from 3 per cent in May, according to the Department of Communities and Local Government (DCLG). This means the average UK house price was £215,029 in June, down by more than £1,600 in a month and £6,000 since the beginning of the year.

Meanwhile, gross mortgage lending was down 32 per cent in the year to June to £23.6bn. Demand for new loans dropped by about 9 per cent in just four weeks between May and June this year, the Council of Mortgage Lenders (CML) found, while first-time buyers and home movers alike borrowed 9 per cent less money in June due largely to tough lending requirements. The average homebuyer put down a 22 per cent deposit in June, up from 20 per cent in May.

Commenting on the figures, Simon Rubinsohn, the Royal Institute of Chartered Surveyors' chief economist, said: "The data provide further evidence of the continuing pressure on the housing market. Loans for house purchases remain subdued, with first-time buyers under particular pressure. Any early relief for homebuyers in the form of a cut in interest rates is unlikely following the bigger than expected jump in inflation."

Nor do experts predict a change in fortune for the housing market any time soon, partly because of rumours of a stamp duty reprieve. Currently house buyers pay the Government tax worth 1 per cent of properties between £125,000 and £250,000, 3 per cent of properties up to £500,000 and 4 per cent on any home worth more than that. Many would-be property buyers have put their plans on hold in case stamp duty is temporarily halted in an attempt to kick-start the market.

But a DCLG spokesman said: "It is important to remember that UK house prices are significantly higher than five years ago. The current issue affecting the market is largely about the supply of credit – a very different situation to the early 1990s which was about high interest rates and unemployment."