New mortgages plummet to lowest on record as credit crunch takes its toll

Just 50,300 loans were handed out in January to buy a home, according to figures published yesterday by the Council of Mortgage Lenders.

In a dramatic collapse, the number has more than halved since the credit crunch began in August last year.

The CML said yesterday its figures highlighted the drastic consequences of the "ongoing financial turmoil".

In August, about 3,320 people every day were taking out a mortgage to buy a home. Today, the number has plunged to just 1,620.

The pace of the collapse is extraordinary, falling nearly 20 per cent in just four weeks between December and January.

The drop is a sign that many homebuyers are deserting the property market, worried that house prices are going to fall.

The Royal Institution of Chartered Surveyors said this week that prices are falling at the fastest pace for 30 years in some parts of the country.

Another reason for the fall is that many homebuyers are struggling to find a cheap mortgage deal.

Since the credit crunch, banks and building societies have been rushing to close the door to homebuyers.

Mortgages which offer more than 100 per cent of the value of a home have disappeared.

Many lenders have also changed their rules, and refuse to lend to anyone who does not have a significant deposit.

Michael Coogan, CML's director general, said the new rules were having a "discernible impact" on homebuyers.

He said: "The wholesale funding markets remain largely closed and mortgage funding still remains constrained.

"This is now having a discernible impact on lending criteria and the ability of first-time buyers to get into the housing market."

Simon Rubinsohn, chief economist at RICS, said the figures show homebuyers are having to cope with a "more hostile environment".

He said: "It is clear evidence that the credit crunch is now having a meaningful impact on the availability of finance for home purchases."

First-time buyers, who are now typically putting down 12 per cent deposits, are particularly "under the cosh", he said.

The figures also reveal further signs of the financial squeeze being put on homeowners by soaring household bills.

While the number of loans for homebuyers is collapsing, the number of people remortgaging is soaring.

In January, 85,000 remortgaged their homes, which is a massive 44 per cent jump on the previous month.

Experts said many people were now remortgaging - typically taking out £136,500 loans - in a desperate bid to save money.

With other household bills rising, they are desperate to cut the cost of the most important and usually the biggest bill - their mortgage.

A person with this size loan could save nearly £170 a month if they switched to a cheaper mortgage deal.

By moving from a lender's expensive standard variable rate to a two-year tracker deal, their monthly payments would fall from £986 to £817 a month.

Melanie Bien, a director of mortgage broker Savills Private Finance, said: "Everything is getting more expensive.

"Food and fuel bills are all going up, but the most important thing is the mortgage."

It comes as the Government's house price figures, published yesterday, highlighted the problems faced by young people trying to buy a home.

In London, the average price of a property soared above £350,000 for the first time in January.

To buy a home in the capital, you would need a staggering £351,096, which is £42,444 more than the same home would have cost last year.

Overall, the figures from the Department for Communities and Local Government show the average price is now £221,758 in January, up 1.7 per cent on the previous month.