New slump in mortgage lending

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A total of £17.7 billion was advanced during the month, 10% less than during August and 42% below the level for September last year, according to the Council of Mortgage Lenders.

The figure was also the lowest since January 2005, and the weakest figure for the month of September since 2001.

The group said there was typically a seasonal fall in mortgage lending between August and September, although the drop this year was more marked than usual.

It added that a combination of lower consumer demand and ongoing funding constraints meant mortgage lending was likely to remain subdued for the rest of 2008 and into the first quarter of next year.

CML director-general Michael Coogan said: "The mortgage market is open for business. But weakening consumer demand and ongoing funding constraints will dampen monthly lending figures for the rest of this year and into the first quarter of 2009."

He added that the CML now estimated that total lending for 2008 would be around £255 billion, down from £363 billion in 2007 and the lowest annual total since 2002.

The fall in net lending, which strips out redemptions and repayments, would be even more dramatic, at around only £40 billion, less than half the level of net lending of £108 billion in 2007, and below the CML's previous forecast of £55 billion for the year. It would also be the lowest level of net lending since 2000, when advances on this measure reached £40.7 billion.

Mortgage lending has been hit by falling house prices, which have put people off moving home or getting on to the property ladder. But it has also been constrained by the tighter lending criteria adopted by lenders in the face of the credit crunch.

The increasingly large deposits demanded by lenders in order for borrowers to qualify for the best rates is thought to have put many people off remortgaging, while higher rates and arrangement fees mean some are better off staying on their lenders' standard variable rate when their existing deal comes to an end.