Mortgage approvals hit record low as loan deals plummet 56% in a year

Just 27,968 loans were approved for people moving, 56 per cent fewer than in May 2007, and the lowest level since the British Bankers' Association began collecting the data in 1997.

The slide in value was equally dramatic, with loans for house purchase totalling just £4.3 billion, 57 per cent less than 12 months ago.

Just 27,968 loans were approved for people moving in the past year, a drop of 56% - the lowest since records began in 1997.

Total lending was just £16.23 billion, down from £17.03 billion in the previous month, while net lending, which strips out redemptions and repayments, increased by only £4.29 billion, 23 per cent lower than April's figure and the second lowest rise since 2002.

The BBA warned that subdued lending looked set to continue due to the low level of approvals during May.

Mortgage approvals for people withdrawing equity or taking out buy-to-let loans fell 38 per cent year on year and nine per cenr during the month.

The only area where lending held up was remortgaging, as people continued to look for new deals after coming to the end of short-term fixed-rate loans.

More than 63,000 loans were approved for people switching loans, with remortgaging accounting for a record 53 per cent of all approvals, although figures were still down 10 per cent on the previous year.

David Dooks, BBA director of statistics, said: "Measures of mortgage activity were lower in May as a result of tighter lending criteria and economic pressures on households.

"Only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders."

Howard Archer, chief UK and European economist at Global Insight, said: "More housing market data, more very worrying news that heighten concern that we are in for an extended, deep correction in the housing market.

"The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions.

"Very low housing market activity seems certain to feed through to further depress already markedly weakening house prices."

Yesterday it was reported that the number of properties sold has tumbled by 40 per cent in the past year. despite figures showing that property prices are falling faster than any time in the past 25 years.