Home loan approvals fall to new record low

The housing market plunged deeper into the abyss today after mortgage lending crashed to a record low.

Bank of England figures showed just 33,000 home loans were approved in July — down 6% from the 35,000 in June and a massive 71% from the 114,000 approved in July 2007.

It was the lowest number recorded by Threadneedle Street since records began in 1993 and 100,000 less than the peak of 133,000 in November 2003.
The grim news highlighted the crisis facing the propert market as banks and building societies cut back lending, raise mortgage rates, and demand hefty deposits from buyers.

The lending freeze has sent house prices tumbling and economists today warned they will continue to fall for another two years.

Howard Archer of Global Insight said it was "yet more very disturbing mortgage data that heighten concerns over the potential depth and length of the housing market correction".

He forecast prices to fall a total of 15% this year, 12% in 2009, and again in the first half of the following year, leaving a home valued at £200,000 at last year's peak worth just £140,000 by mid-2010.

George Buckley of Deutsche Bank said mortgage approvals are falling at a far sharper rate than during the housing crash of the early 1990s.

Jonathan Loynes of Capital Economics said the news was "unambiguously gloomy". Oliver Gilmartin of the Royal Institution of Chartered Surveyors said: "Yet another low for mortgage activity offers little hope that house price declines will find a floor any time soon." It intensified calls for the Government to step in.

The dismal mortgage figures kicked off a key week for the British economy, with the Bank of England monetary policy committee meeting on Wednesday and Thursday to set interest rates.

The MPC is under pressure to cut rates from 5% to breathe life into the ailing economy and the housing market, but with inflation well above the 2% target at 4.4% and rising, such a move seems unlikely.