The quantity of mortgage applications approved for those seeking to buy a new property in the UK dropped to just 33,000 in July, adding to fears of an imminent recession.
Figures from the Bank of England (BoE) reveal that the number of loans approved was reduced by 71 per cent year-on-year to the lowest level recorded, as lenders choose not to fund to buyers. The credit crunch has forced lenders to take stock of the money that they are lending and the new BoE figures are seen by many analysts as another blow for the economy.
Adrian Coles of the Building Societies Association told the BBC: "Activity in the property market is still on the wane and the approvals figures suggest this is likely to go on for some time. Recent falls in property values have been widely publicised, reducing potential buyers' confidence and keeping them out of the market."
The collapse by specialist lenders other than banks and building societies, such as those specialising in sub-prime mortgages, is also illustrated by the BoE figures. In July 2007, such lenders gave out 32,000 mortgages for house purchase; in July 2008 they lent just 2,000. Meanwhile, building societies across the UK approved just 7,000 homeowner loans, compared to 24,000 by the major banks.
The Bank also said that mortgage lending rose by 3.231 billion pounds in July, more than predicted yet only 33 per cent of the increase seen in July 2007.
However, no matter the decline, building societies have seen that their inflow of cash from savers has continued its growth, with savings accounts in building societies having a total of 1.435 billion pounds in July, compared to 723 million pounds 12 months previously.
Just last week, the latest survey from Nationwide found that UK house prices saw an annual double-digit fall for the first time since 1990 - with prices 10.5 per cent lower in August than a year ago. The new BoE figures could increase the pressure on the Bank to cut the base rate of interest in order to help the housing market and the wider economy. However, when the monetary policy committee meets this Thursday (September 4th), it is likely to keep interest rates on hold at five per cent in the interim.
Howard Archer, an economist at Global Insight, told Reuters: "Although we are sure the BoE to cut interest rates before the end of the year, we believe it will not change before November when there is likely to be growing evidence that the deepening economic slowdown and more unemployment are diluting underlying inflationary pressures."
In August, the BoE decided to leave the base rate at five per cent for the fifth consecutive month, after a 0.25 per cent cut in April. As a result of this consumers' abilities to handle other spending costs - in areas such as personal loans, credit cards and transport costs - did not come under further pressure.
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