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The number of mortgages taken out by people buying a home fell to its lowest level in 34 years during 2008, the Council of Mortgage Lenders (CML) said today.
A total of 516,000 mortgages were arranged for house purchases over the year, a decline of 49% from 2007's figure of 1m and the lowest number since 1974. The drop was driven by a lack of mortgage funding and a fall in demand from would-be buyers put off by steep falls in house prices.
Net lending for all types of mortgage, which strips out redemptions and repayments, also dived sharply to £39.7bn in 2008 from £108.2bn a year earlier.
First-time buyers have been hardest hit by the mortgage drought, with lenders increasing minimum deposit sizes sharply and targeting their best deals at those with the most equity to put down, and their numbers have dropped as a result.
Across the whole of last year 194,000 home loans were granted to new buyers compared with 357,800 in 2007, while the average deposit put down by a new entrant to the market rose to 22% – its highest level since 1974. Those who were able to raise loans did not stretch themselves as much as in previous years, borrowing an average of 3.1 times their salary compared with 3.4 times earnings in 2007.
The lack of new blood in the market and fears about falling house prices had repercussions further up the housing ladder, with the number of home mover loans dropping to 322,200 from 658,000.
The CML's figures show the number of new mortgages for purchases continued their downward slide in December, despite a third successive monthly cut in the cost of borrowing. The number of house purchase loans fell to a new low of 32,000. This was 5% fewer than in November and 49% below the figure for December 2007.
The number of remortgages dropped sharply as falling interest rates made many standard variable rate deals more attractive than short-term fixed and tracker rates, deterring borrowers from swapping deals.
In December 40,000 remortgages were approved, down 26% on November's figure and less than half the 88,000 loans approved in April.
The CML's director general, Michael Coogan, said: "The shortage of mortgage funding and reduction in the number of active lenders has reshaped the mortgage landscape in the space of a year. This low level of transactions is insufficient for the functioning of an efficient market.
"Measures are now in place to seek to restore the flow of funding to the mortgage market, but this will take time to feed through. Further action may still be necessary to increase transactions, stabilise prices and restore confidence."
Louise Cuming, head of mortgages at comparison website moneysupermarket.com, said the figures showed how little recent interest rate cuts had done to stimulate the housing market.
"If the lending noose isn't loosened then the market will stay at these historic low levels. We didn't even plummet to this type of figure in 1989 when the Bank of England rate hit 14.88%," she said.
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