Mortgage lending set to slump further

MORTGAGE lending in the UK fell to a record low last year and is expected to drop further this year, new Bank of England figures have revealed.

Total lending was just 8.15 billion during 2010, a fall of 11.33bn on the previous year and the lowest level since records began in 1987.

It was only the third time that the BoE has recorded a contraction in net mortgage lending, and the fall was the second biggest, after people repaid 377 million more than they borrowed in July last year.

Lending levels look set to remain low, with the number of mortgages approved for house purchase dropping 10 per cent in December to 42,563 - the lowest level since March 2009.

Experts said the mortgage market had been hit hard by the credit crunch, which has meant lenders have less money to advance, and that potential borrowers had been put off by the wider economic problems.

Total mortgages for 2010 are less than the Council of Mortgage Lenders' prediction of 9bn for the year. The group has warned lending levels are likely to fall to just 6bn this year.

A leading economist said that the figures showed the UK's housing market was "stuck in the doldrums".

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Even allowing for the fact that the severe weather likely hit mortgage activity in December, the Bank of England data point to a housing market stuck in the doldrums.

"We believe that the fundamentals remain largely unfavourable for the housing market. We maintain the view that house prices will fall by around 10 per cent from their peak 2010 levels by the end of 2011."