THE number of mortgages approved for people buying a house dived by nearly 70% during the past year to hit a new record low, figures showed today.
Just 36,000 new loans were arranged for people moving house during June, 69% fewer than in the same month of 2007 and 12% less than in May, according to the Bank of England.
Mortgage lending also dropped steeply during the month, with net advances
hitting a near eight-year low of £3.1 billion.
The figures, which were worse than analysts had predicted, show the continued stranglehold the credit crunch has on the mortgage and housing markets as people struggle to raise the finance they need in order to move house.
They come on the day that a Government commissioned report is expected to warn that there is no quick fix for the problems in the mortgage market, with the log-jam in home loan funding likely to continue for months.
But the Crosby Review, which is being carried out by the former head of the Halifax Bank of Scotland Group, Sir James Crosby, is expected to say funding of home loans should be left to the market, although it may suggest further support from the Government on a temporary basis.
Today's Bank of England figures showed a fall in all types of mortgage approval, with just 165,000 new loans agreed during June, down from 214,000 just three months earlier.
Within this total, the number of loans agreed for people remortgaging slumped to 84,000, down from 90,000 during the previous month, while approvals for buy-to-let and equity release were also down.
Howard Archer, chief UK and European economist at Global Insight, said: "Yet more very disturbing mortgage data that heightens concerns over the potential depth and length of the housing market correction.
"The Bank of England data graphically highlights that housing market activity continues to be throttled by stretched affordability and tight lending conditions."
Vicky Redwood, UK economist at Capital Economics, said the latest fall in mortgage approvals pointed to house price falls of at least 20% this year.
Simon Rubinsohn, chief economist at Royal Institution of Chartered Surveyors, said: "The latest numbers from the Bank of England demonstrate in the clearest possible way the consequences of the credit crunch for the residential property market.
"A lack of availability of mortgage finance has seen the volume of mortgages approved drop to just 36,000 in June.
"Unless the authorities take steps to restart the mortgage market, the likelihood is that there will be more bad news in store for the both the housing market and the retail sector during the latter part of the year."
Unsecured lending also remained subdued during June, despite concerns that the rising cost of living would force people to borrow money in order to make ends meet.
People spent £11.11 billion on their credit cards during the month, but strong repayments meant outstanding plastic debt rose by just £439 million, down from £589 million in May.
Borrowing through loans and overdrafts was also down on the previous month, increasing by £433 million, the lowest figure since December and well down on the previous month's jump of £701 million.
Meanwhile, the Building Societies Association saw outstanding mortgage debt fall by £526 million in June – the first time that consumers have repaid more than they owed since its current records began.
The group said the fall was due to the problems in the housing and mortgage markets, as well as the conservative lending strategy adopted by building societies.
People also saved less with mutuals during June, with building societies reporting net inflows of £419 million during the month, well down on the total of £1.82 billion seen two months earlier in April and below the figure for June 2007 of £576 million.
Despite the fall, building societies still saw record savings inflows of £6.3 billion during the first six months of the year, well up on £3.86 billion during the same period of 2007.
But mortgage lending more than halved year-on-year, with net lending of just £3.47 billion during the first six months, down from £8.43 billion in 2007.
The full article contains 710 words and appears in The Scotsman newspaper.
