New low in first time house buyers

Just 15,600 people bought their first home during the month, the lowest level since the Council of Mortgage Lenders began to collect data in 2002 and less than half the 34,800 who bought a property in August last year.

The slump was accompanied by a further tightening in lending criteria by lenders, with first-time buyers now putting down average deposits of 16%, the highest level recorded by the CML.

The average amount borrowed by people taking their step on the property ladder also dropped to its lowest level since May 2006 of £106,754, reflecting both falling house prices and the higher deposits being demanded by lenders. People typically borrowed just 3.18 times their income, the lowest multiple since March 2006.

Across all buyers, a total of just 42,200 mortgages worth £6 billion were advanced for house purchase during the month, both new record lows.

There were also steep falls in the number of mortgages taken out by home-movers, with these dropping by 61% in volume and 64% in value compared with August last year to 26,600 and £4.1 billion respectively. A further 74,000 loans worth £10 billion were advanced to people remortgaging, the lowest level in terms of both volume and value since March this year.

Gross lending for the month, which includes figures for equity release and buy-to-let loans, totalled £19.7 billion, a 20% fall compared with July's figure and 42% below the sum advanced in August 2007. It was also the lowest monthly level since February 2005.

Nearly a third of borrowers opted for a tracker mortgage during August, reflecting expectations that interest rates would fall in the near future, with 31% of people taking out a deal which is tied to the Bank of England base rate, up from 28% in July.

Separately, an economist said house prices could fall by a further 5% to 10% before the bottom of the market is reached.

Appearing before the Treasury Select Committee, David Miles, Professor of Finance at Imperial College London, said economic models suggested that if interest rates stayed the same and prices fell by a further 5% or 10%, meaning property would have lost around 20% of its value from its peak, then the housing market would stabilise.