Mortgage lending in August ‘collapses’

29 September 2008

New Bank of England figures show a ‘collapse’ in mortgage lending last month

Latest figures from the Bank of England have shown that new mortgage lending slumped in August, with only 32,000 new mortgages approved in the month.

In August banks and building societies lent an additional £143m in mortgages, just 5% of that lent in July and only 2% of the figure seen last August.

However, August is traditionally the month when least property sales occur, but the decrease in lending is beyond that normally seen in the quietest month of the year – house buyers have been cautious about buying properties because of the continual drop in house prices and talks of an imminent recession.

Howard Archer, of Global Insight, said: “The dire Bank of England mortgage data shows that housing market activity is being decimated by the highly damaging combination of stretched buyer affordability and tight lending practices.”

According to the Bank of England’s figures the UK’s mortgage debt fell, for the first time since records started in 1993, from £1,216,728m to £1,216,330m.

Simon Rubinsohn, of the Royal Institution of Chartered Surveyors (Rics), said: “It is significant that net mortgage lending during the month actually stagnated, reflecting the recent precipitous decline in approvals.

“Subsequent turmoil in the financial markets is already having a direct impact in raising some mortgage rates,” he added.

Several of the biggest lenders have already increased their rates with Lloyds TSB, including Cheltenham & Gloucester, increasing the rates on its two- and three-year fixed-rate deals by up to 0.26% from this evening.

Tonight will also see Northern Rock increasing the cost of all of its residential fixed and tracker rate mortgage products.

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