Home loans fall in credit clampdown

Some £34.4billion was advanced to homebuyers and owners last month - down from £34.8billion in June.

Although July's total was a record for the month, analysts said it was likely to be the high-water mark for the housing market.

They predict lending will continue to decline for the rest of this year.

Estate agents said interest rate rises have finally started to drive buyers out of the market and have forced sellers to cut their asking prices.

The Council of Mortgage Lenders, which produced the figures, said July was a record month only because an exceptional number of homeowners had remortgaged.

Some 90 per cent of the agreed loans were fixed-rate deals.

A spokesman for the council said it expected the cumulative effects of rate rises to "feed through to lower levels of mortgage lending as the year progresses".

It predicts, however, that total mortgage lending for the year will reach £360billion - an all-time high.

Banks and building societies are finding it increasingly difficult to borrow money on favourable terms as a result of the credit crunch triggered by the collapse of the "sub-prime" mortgage market in the U.S.

In response, they have tightened their lending conditions, denying mortgages to customers they consider a risk.

Some lenders that specialise in providing mortgages to those with a suspect credit history have either called in loans or pushed up interest rates.

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Simon Rubinsohn, of the Royal Institution of Chartered Surveyors, said the U.S. credit problems would have a significant impact on Britain.

"The turmoil in financial markets will push up mortgage costs for in-vogue longer-term fixed rate deals and will further slow the residential property market," he said.

"With 90 per cent of borrowers opting for fixed rate security, those who are already financially stretched will find themselves paying a higher price for the added peace of mind.

"There is already evidence lenders are becoming more discriminating in advancing loans to borrowers and this could be compounded by possible job losses in the City if the volatility persists.

"The potential for lower bonuses in the financial services industry could also cast a pall over the property market, slowing price gains from their recent rapid pace."

July's figures show banks claimed a bigger share of the mortgage market at the expense building societies. Big-name banks have been offering borrowers larger and larger loans relative to salaries.

Adrian Coles, of the Building Societies Association, said: "As mortgage payments increase, household finances are likely to be squeezed further.

"Societies are continuing to ensure they lend responsibly to people who can afford to borrow. This ensures borrowers should be able to repay their loans.

"Societies don't want to lend to people who are going to have difficulty making repayments."

Evidence that the housing market is starting to cool has come in a report showing that asking prices for homes in London have fallen for the first time in a year.

The figures - from Rightmove, a property website - also showed declines in the West Midlands, the North of England and the South-West.

The number of homes coming on to the market was found to have fallen, possibly as a result of the introduction of Home Information Packs.