The value of mortgages lent to British homebuyers fell 95 per cent last month, according to the Bank of England.
Mortgage approvals hit a record low after banks tightened lending Photo: PA
It said mortgage lending dived to just £143 million during August – its lowest since this data was first collected in April 1993 and a fraction of the £2.998 billion lent in July.
The bank also revealed that mortgage approvals fell to 32,000 last month from 33,000 in July.
While marginally higher than analyst forecasts, it was the lowest since data began being collected and means approvals are running at less than a third of their 109,000 total in August 2007.
Customers are having mortgages approved but few are completing purchases, meaning the money being paid out by lenders has tumbled.
The prospect of banks facing further losses is likely to limit their ability to lend over the next couple of years.
Shares in Royal Bank of Scotland, the owner of Natwest, fell the most in 20 years today on concern that the rescue of Belgium bank Fortis, with which RBS jointly acquired ABN Amro last year, will end up hurting the Scottish lender.
Experts said the housing market is being “decimated”, and that further falls in house prices are expected.
Howard Archer, chief UK and European economist at Global Insight, said: “The dire Bank of England mortgage data show that housing market activity is being decimated by the highly damaging combination of stretched buyer affordability and tight lending practices.
“Widespread expectations that house prices will continue to fall markedly for some considerable time to come is also significantly limiting housing market activity, as is heightened concern over the economic outlook and job prospects.”
The Bank of England has held interest rates steady at 5 percent since April but economists said the figures would mean a cut was likely to be made soon.
Paul Dales, UK Economist at Capital Economics said: “It is possible that the suspension of stamp duty for properties costing less than £175k at the start of September will support approvals in the coming months. But we are not convinced. Why would households borrow to buy an asset that might soon be falling in price by around 25pc per year?”
By Myra Butterworth, Personal Finance Correspondent
Last Updated: 4:15PM BST 29 Sep 2008
Source: The Telegraph