Mortgage lending falls, suggesting a slowdown

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by Kay Murchie

According to the Council of Mortgage Lenders (CML), the total value of mortgages approved in September was down by more than £4 billion in August to £29.96 billion – a decline of 12%, suggesting a housing market slowdown.

The decline was over double the 5% usually observed at this time of year, traditionally the start of a quieter period in the market.
The figures make clear how the 5 interest rate hikes since August 2006, coupled with the credit squeeze, has deterred lending.

Potential buyers are being driven out of the market resulting in a decline in sales and lower prices in many areas. Prospective buyers simply cannot afford to get onto the property ladder as their income has not risen in line with higher mortgage repayments and interest rate increases.

In the meantime, banks and building societies have withdrawn 40% of their mortgage deals as they tighten lending criteria. The latest figures will fuel speculation that Britain faces a house price slump.

Recently, the International Monetary Fund suggested that housing stock is overvalued, saying as much as 40% of the rise in prices seen in the last 10 years cannot be justified by economic circumstances.

A recent study showed that the average house price is now 6 times the average salary.