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Mortgage lending at 10-year low

Gross mortgage lending in January fell to the lowest level in 10 years as buyers were deterred by the end of the stamp duty holiday, figures showed this week – but experts have warned that lending could decline further as banks lose government funding support.

According to the Council of Mortgage Lenders (CML), gross mortgages totalled just £9.1bn in January, down 32 per cent from the £13.4bn in December. This is the lowest monthly total since February 2000, when gross lending was £7.9bn.

While a seasonal fall is usual between December and January, the CML said the drop was “larger than average” due to higher purchase activity in December, as borrowers rushed to take advantage of the stamp duty holiday on properties valued less than £175,000.

Although there was an improvement in mortgage availability in the second half of last year and the beginning of 2010 – with more products offered at lower rates – mortgage brokers warn that criteria still remain strict, especially for first-time buyers.

“There are still loads of people who can’t come up with a deposit,” said Simon Gammon of Knight Frank Finance. He said in spite of an improvement in loan-to-values, there remains a “big differential” in prices of mortgages above and below 75 per cent loan-to-value.

“Anyone is kidding themselves if they think we are back to a vibrant mortgage market,” said Sue Anderson of the CML. The CML warned there could be a further decline in lending when the government’s support schemes – the Special Liquidity Scheme and the Credit Guarantee Scheme – come to an end between 2011 and 2014. The schemes helped fill the £300bn gap in mortgage funding caused by the collapse of wholesale funding markets.

“This two-speed market, consisting of those already in the market with a mortgage and those who would like to be, is set to continue – and possibly worsen,” said Anderson