Number of new mortgages falls 70% to record low as economists warn slump 'will last until 2011'

Only 36,000 people successfully applied for a house purchase loan in June, Bank of England figures have revealed.

The monthly report on lending to individuals reports the lowest number of new home loans since records began in 1993.

Set to last: Homeowners have been warned mortgage misery will continue for another three years

Howard Archer, chief UK economist at consultants Global Insight, said the collapse of the market had been ‘massive’ and ‘staggering’.

At the height of the boom in November 2003 lenders were handing out 4,500 house purchase loans every day. Now it is just 1,200 a day.

A Government-funded report warned yesterday that the mortgage drought will continue until 2011.

The ability of banks and building societies to lend money will remain ‘severely constrained’ for at least the next 30 months, according to the report’s author, Sir James Crosby.

Sir James, who used to run Britain’s biggest lender Halifax, said it could cause repossessions to increase as people will not be able to afford higher repayments.

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Some types of loan deals are at their most expensive for a decade, with families with an average £155,000 loan forced to find an extra £1,000 a year.

Repossessions were already predicted to jump from 75 a day last year to 125 a day this year, but may rise higher still.

The biggest losers will be first-time buyers, who face paying a fortune in rent while they struggle to get a loan to buy a home.

Economists warned that yesterday’s Bank of England’s figures indicate that their dire forecasts about house price falls are even more likely to come true.

Ed Stansfield, property economist at Capital Economics, said his prediction that prices will plunge 35 per cent by the end of 2010 ‘remains on track’.

‘At current levels , the figures suggest that house prices could drop by 20 per cent this year,’ he said.

If correct, this means the average home will drop by around £40,000 this year from £195,350 in January to £156,300 by the end of December – the fastest fall in a year ever seen.

The current combination of soaring bills – particularly food and fuel – below-inflation pay rises and higher mortgage repayments is pushing many families over the edge.

Yesterday’s Bank of England figures showed that new borrowing on credit cards has rocketed by more than 90 per cent over the last year to £439million in June.

This suggests the most hard-pressed families may be using their credit card to pay their mortgage and other essential household bills.

They take out money on their credit card – one of the most expensive ways to get cash – and put it in their bank to stop direct debits being refused.

Banking group Abbey, set to overtake Halifax as Britain’s biggest mortgage lender this year, said yesterday that more and more of its customers are falling behind their repayments.

Between January and June, 8,136 people had not paid their mortgage for at least three months – 18 per cent more than last year.

Abbey’s figures showed the crisis facing those buying a home or remortgaging without a big deposit. Just one per cent of its recent mortgage lending was to customers borrowing 90 per cent or more of the property’s value.

The number of repossessed properties coming up for sale in auction houses has rocketed 66 per cent over the last year, according to auction experts Essential Information Group.

LibDem treasury spokesman Vince Cable said: ‘It is crucial the Government acts to ensure that those struggling to meet rising mortgage costs do not find themselves out on the street.

‘Ministers must act to deal with the rising numbers on council house waiting lists. It is high time councils were allowed to buy up empty new homes to meet this inevitably rising demand.’

:: One in four of those who would ‘love’ to buy their own home believe they will never will, a survey revealed yesterday.

Louise Cuming, from comparison website moneysupermarket.com which carried out the poll, said: ‘It is deeply concerning so many people feel they will never be able to buy a house.

‘Owning your first property used to be a rite of passage, but nowadays the challenge is to save enough for the deposit, stamp duty and fees not to mention the worry of affording the mortgage.