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Total mortgage lending fell by 30% in 2008 to a six-year low of £256bn, as the credit crunch caused banks and building societies to scale back on new loans, figures from the Council of Mortgage Lenders (CML) showed today.
The value of new mortgages taken out fell steadily month-on-month throughout the year, with falls continuing into December when gross lending was down 11% on November's figure at £12.6bn.
December's figures are traditionally among the lowest of the year, but last year's numbers were small even when compared with the same month of 2007, falling by 47% from £24bn.
The CML figures show total lending is down by a third on 2007's figure of £364bn and is at its lowest level since 2002, highlighting the impact of the credit squeeze on the market.
Recent mortgage approval figures from the Bank of England, which showed the number of new deals falling to a record low in November, suggest lending figures will remain low for some time to come. The CML said it could be the second half of the year before the value of completed mortgages starts to rise.
Mortgage lenders began to scale back on lending early in the summer as the cost of inter-bank lending started to rise. By the autumn, most had stopped lending to borrowers with small deposits and increased the prices on new loans.
Many are still wary of first-time borrowers and are targeting their best deals at those with at least 40% to put down as a deposit.
The CML's director general, Michael Coogan, said: "This week's package of measures to support the financial system and invigorate new lending was an essential and welcome move by government.
"The next challenge is to settle the detailed requirements for each measure, so that they can be used by as wide a range of market participants as possible, and as soon as possible."
He added: "A mortgage market solely funded by a few large banks and building societies would be unlikely to have the capacity to match future consumer borrowing demand, or be as competitive in the long term as the UK market has been before the credit crunch. Increasing the range of active lenders and funding capacity in the market overall is a vital next step. "
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