Home loans plunge as cuts threat takes toll

Mortgage lending for house purchases plummeted by 29 per cent during January as consumers were spooked by rising taxes and government spending cuts.

Only 28,500 loans were advanced to people buying a property during the month. This was the lowest level since February 2009 and 29 per cent down on December's figure, the Council of Mortgage Lenders (CML) said.

The group said there was usually a fall in lending between December and January, but the latest drop was of a greater magnitude than could be explained by seasonal factors alone.

Instead, it blamed a combination of the spending cuts beginning to bite, and rising inflation and taxes putting pressure on household budgets.

Housing market activity was also hit by the extreme winter weather during December. Predictions that interest rates will start to rise again in the near future are also likely to have taken their toll.

Mortgages advanced for house purchases were 12 per cent lower than in January last year, which the CML said was a "substantial" year-on-year fall, given the fact that the housing market was very subdued in January 2010 following the rush to buy properties before the stamp duty holiday finished at the end of December.

Michael Coogan, CML director general, said: "Pressures on household budgets have been increasing both in terms of take-home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011.

"The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months."