Homes warning as new mortgages fall to record low

Britain's housing crisis deepened today as the number of new home loans slumped to a record low and a government adviser warned of three more years of rising mortgage costs.

The Bank of England revealed only 36,000 mortgages were approved for people moving home last month - 69 per cent down on the total 12 months ago. The number has now fallen for 14 months in a row and is at the lowest level since records began in 1993.

Today a report by former HBOS boss Sir James Crosby, commissioned by Prime Minister Gordon Brown, also issued a stark assessment of the prospects for the country's housing market and wider economy.

Sir Jameswarned that lenders would continue to raise the cost of their mortgages for at least two to three more years and predicted more repossessions and continuing falls in both house prices and consumer spending.

Sir James's report, ordered in the hope of unearthing potential solutions to the slump, also cautions that the government intervention, while a possible option, might "create more problems-than it would solve". It adds that the shortage of mortgage finance "will persist throughout 2008, 2009 and 2010".

The bleak conclusions were reflected in today's Bank of England figures, which also showed a steep fall in the overall value of mortgage lending, with net advances last month hitting a near eight-year low of £3.1 billion.

There was also a fall in all types of mortgage approval - including remortgages, equity release and buytolets - with just 165,000 new loans agreed during June, down from 214,000 three months earlier.

City experts said the figures showed the continued stranglehold of the credit crunch. Howard Archer, chief UK and European economist at Global Insight, called it "yet more very disturbing mortgage data".

Vicky Redwood, UK economist at Capital Economics, said the latest fall in mortgage approvals pointed to house price falls of at least 20 per cent this year. Simon Rubinsohn, chief economist at Royal Institution of Chartered-Surveyors, said: "Unless the authorities take steps to restart the mortgage market, the likelihood is that there will be more bad news in store."

In further signs of the troubled housing market, Abbey today said that the number of its customers more than three months in arrears with their mortgages had risen significantly.

But calls for government intervention to prop up the housing market were met with only a limited endorsement in Sir James's report.

One option is for the Treasury to guarantee new mortgage-backed securities to increase the flow of money available to banks and building societies, but warned that this might ultimately be rejected.

The report added: "Lenders are seeking to re-price existing mortgages but this is a slow process which will take two or three years to run its course. This will cause an increase in defaults, which are in any case on the increase."

Nick Leeming, of Propertyfinder, said: "The Crosby report offers a chink of light at the end of the tunnel but this is not a time to delay or be timid."