Home Loan Levels Slump To Record Low

The massive tightening in mortgage lending was all too apparent in the Council of Mortgage Lenders' (CML) figures for February 2008.

Loans for house purchase declined to 49,000 from 51,000 in January. Not only is this 33 per cent lower than last February's levels, it's also the lowest monthly total on record.

The same can also be said of first-time buyer lending levels, as they took out just 18,000 home loans in February, marginally lower than the previous month's 18,200.

This was also the lowest monthly total on record as well as being 31 per cent lower than the number of loans taken out in February 2007.

First–timers continued to borrow 88 per cent of their property's value, which edged up to 3.33 times their income.

Home movers were borrowing slightly more of a property's value in February than the month before, rising from 70 per cent to 71 per cent while their income multiple remained at 2.97 times.

Trackers Rival Fixed-Rates

Borrowers ditched fixed-rates in their droves during February, and the market share for fixed deals dropped from 57 per cent to 52 per cent, the lowest level since March 2005.

Tracker-rates increased their market share to 35 per cent from 33 per cent, as borrowers banked on further interest rate cuts from the Bank of England.

However, the CML adds the important caveat that these figures are retrospective and typically relate to applications from several months ago. They do not, therefore, take into account the recent shrinking of loan availability and higher mortgage rates.

Michael Coogan, CML Director General, comments: "The February figures relate to completions of transactions started several months ago.

"More recently, there has been consistent evidence of tightening in lending criteria which will lead to shrinking pipelines of new business as the recent Bank of England’s credit condition survey made clear.

"We expect this process of further tightening in lending criteria to continue in the second quarter as lenders respond to the challenging market conditions.

"Individual lenders are having to balance consumer demand with service considerations, as many of those active in the market are seeing higher levels of applications than they can deal with in the wake of the overall tightening in supply of funding to the market.

"While lower short-term interest rates help a little, we continue to urge the Bank of England to use more broad-based and flexible measures to increase liquidity levels in the UK market so that firms have sufficient funding available to match consumer borrowing demand in 2008."