Mortgage lending falls by 17%

Mortgage lending in the UK fell by 17% in March compared with figures from this time last year. As lenders wait for further action from the Bank of England to combat the credit crunch, the Council of Mortgage Lenders warned that lending could fall by 50% this year because of the turbulence in the global financial market.

It is expected that a rescue plan for banks will soon be announced. This should allow banks to swap mortgage securities for government bonds, which should free up balance sheets and allow banks to lend more.

Michael Coogan, director general of the Council of Mortgage Lenders said: “We await the eagerly anticipated announcement of further action by the Bank of England to respond to these rapidly worsening market conditions.

“Early action is needed if we are to be able to maintain a market in which UK borrowers continue to be able to access mortgage funds at reasonable prices.”

As a result of the credit crunch, banks have become more reluctant to lend to each other. This means many mortgage lenders have been raising the rates for consumers, even when the Bank of England has cut the base rate of interest.

The Council of Mortgage Lenders revealed that gross mortgage lending had risen by 5% from February to March, but there had still been a 17% year on year fall.

In recent years, mortgage lending has risen by around 20% between February and March.

“The low level of activity is not only a consequence of slowing demand due to the elevated affordability pressures, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available,” said Howard Archer, economist at Global Insight.

“Furthermore, potential house buyers are now having to provide higher deposit levels, which is a particularly major problem for first time buyers.”

The Bank of England is expected to cut interest rates to 4.5% by the end of the year. However, concerns over inflation and the weakening pound may limit the number of times the Monetary Policy Committee can take action.

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