The UK mortgage market started the year in rocky fashion with lending down by 13% in January from December.
The £9.2 billion advanced to homebuyers last month, down from the £10.6 billion lent in December, was still 5% higher than the amount lent last January, according to the Council of Mortgage Lenders (CML).
The lending figures are the lowest since February of last year and reflect the “sluggish” nature of the UK economy as a whole and a general lack in demand.
The month-on-month fall is likely to have been caused, at least in part, by the arctic weather conditions in December that prevented many house hunters from viewing properties.
The CML data is compiled from figures supplied by banks, building societies and other lenders who make up some 94% of the UK residential mortgage market.
Stricter lending criteria, a general lack of confidence in the market and mortgage providers asking for higher deposits are also keeping approvals down and are likely to constrain the market for some months to come.
Earlier in the week, the CML said that a typical mortgage required a deposit of some £12,700 at the start of 2007, which rose to £31,500 by the second half of last year.
Peter Charles, an economist at the CML, said that he year-on-year increase was distorted by lower than expected levels of activity last January as reluctant buyers were put off entering the housing market when the stamp duty holiday came to an end.
He said that mortgage providers are unlikely to lift lending restrictions any time soon and will continue to focus on less risky customers with high deposits.
“There is little likelihood of any significant improvement in the mortgage market through the course of this year. In consequence, it is difficult to see much improvement in opportunities for first-time buyers,” he said.
“The Bank of England’s Inflation Report this week noted that the UK banks face a significant funding challenge over the next couple of years: in total, including funding supported by the public support schemes, around £400 billion to £500 billion of wholesale term debt is due to mature by the end of 2012. This implies that, even in the unlikely event of a marked upturn in mortgage demand, the level of activity in the mortgage market can be expected to remain constrained.
“As a greater degree of equilibrium is restored to financial markets, the availability of funding for mortgage lending should improve from current levels to support more normal levels of activity. However, the unprecedented expansion of wholesale funding, and hence mortgage lending, experienced in the mid 2000s is unlikely to return.”
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