Mortgage lending reaches record low

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Net lending was only £143 million in August, a fraction of July's sum of just under £3 billion, the Bank of England said.

The figure, which strips out repayments and people moving their home loan to a different lender, was also the lowest level ever recorded since the Bank began collecting statistics in this format in 1993.

The slump looks set to continue, with the number of mortgages approved for house purchase sliding to a new record low of 32,000 during the month, although this was slightly ahead of economists' expectations.

The steep drop off in net lending contributed to the total amount of outstanding mortgage debt falling for the first time ever in the current statistical series, dropping from nearly £1.217 trillion at the end of July to £1.216 trillion at the end of August.

The Building Societies Association also announced a stalling in lending during August, with net lending for the sector of minus £38 million - meaning that customers repaid £38 million more than they borrowed.

It is the third month running that net lending by building societies has been negative.

Howard Archer, chief UK and European economist at Global Insight, said: "The dire Bank of England mortgage data shows that housing market activity is being decimated by the highly damaging combination of stretched buyer affordability and tight lending practices."

The Bank of England did not offer an explanation as to why net lending had fallen so steeply, but it is likely to be due to a combination of the current problems in the mortgage and housing markets, as well as a jump in mortgage repayments relative to new lending.

Speculation over the Government's recent stamp duty announcement is also thought to have caused people to delay making a purchase during August until the future of the tax was clearer.