Mortgage approvals hit record low as credit crunch spooks banks

The number of mortgages approved for people buying a home fell to a record low during December, figures showed today.

Just 42,088 new loans were approved for house purchase by the major banks, 38 per cent below the level for December 2006 and the lowest figure since the British Bankers' Association first began to collect data in 1997.

Total mortgage advances also fell during the month to levels last seen in September 2005.

A total of £15.1 billion was advanced to consumers during the month, down from £16.5 billion in November and 22 per cent below the figure for December 2006.

The value of mortgage lending fell steadily during 2007, as a combination of the global credit crunch, a slowing housing market and reduced disposable income for consumers all impacted on the market.

David Dooks, BBA statistics director, said: "Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks' ability to lend.

"At the same time, demand for mortgages also softened in the face of increased borrowing costs and lower disposable income.

"The combination of these factors is resulting in the marked market slowdown and weakness in house prices we are now seeing."

But net lending, which strips out redemptions and repayments, picked up slightly during the month, rising to £4.7 billion in December, up from £4.6 billion in November, although it remained below the average for the previous six months of £5.2 billion.

There was also a slight increase in the number of home loans approved for people remortgaging, with around 62,771 new loans in the pipeline, compared with 59,628 in November.

Overall, mortgages collectively worth £16.5 billion were approved during December, 10 per cent less than the value for approvals in December 2006. Howard Archer, chief UK and European economist at Global Insight, said: "The December BBA mortgage data provide yet further evidence that housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices.

"This adds to the already intense pressure on the Bank of England to cut interest rates in February, and to enact significant further reductions thereafter."