Mortgage squeeze tightens further

The availability of mortgages has been hit hard by the credit crunch

The mortgage squeeze is continuing to tighten with a further drop in lending, according to new figures.

The fall in gross mortgage lending is accelerating, with a 3% dip from May to June, according to the Council of Mortgage Lenders (CML).

The CML said gross lending declined to an estimated £23.8bn in June, some 32% lower than the same month a year ago.

CML director general Michael Coogan said borrowers on tight budgets must plan ahead as the trend will continue.

Credit crunch

The more sturdy quarter-on-quarter figures show that lending declined by 1% from the first three months of the year to an estimated £74bn in April to July.

But spring and early summer are usually times when the housing market is more buoyant, with people more likely to look to move than in winter.

The quarterly year-on-year decline had accelerated, the CML said, with lending in the second quarter of 2008 down 21% on a year ago, after a year-on-year dip of 11% in the first quarter.

"Market activity during a traditionally a busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand," said Mr Coogan.

Lenders are taking fewer risks with lending, leading to more expensive mortgages and a demand for bigger deposits.

But the demand from buyers has also fallen as house prices drop. Many are likely to be waiting for a sign of property prices stabilising before they choose to move.

Government plans

Mr Coogan said that net lending had been "constrained" in 2008 and this picture would to continue for the rest of the year.

Borrowers on tight budgets will have to plan ahead to manage higher mortgage payments than they have been used to Michael Coogan, CML 'Rent now buy later' housing plan Nationwide to cut mortgage rates

The figures came in the same week that Housing Minister Caroline Flint announced plans for a "rent now, buy later" scheme to help first-time buyers get onto the property ladder but have time to save for a deposit.

Opposition parties questioned how the scheme would be funded.

The CML welcomed the plan and proposals for housing associations to buy unsold newly-built properties, but said it would only have a "marginal impact" on the housing market.

The UK's biggest mortgage lender, the Halifax, said on Friday that it was trimming interest rates on nearly half of its fixed-rate mortgages by up to 0.15% on 19 July - the second dip in a week.

BM Solutions, Bank of Scotland and Intelligent Finance, also owned by HBOS, are reducing some of their mortgage rates for new borrowers at the same time.

Nationwide and some smaller lenders said earlier this week that they were cutting the cost of some fixed-rate and tracker deals for new borrowers.

"The recent reduction in short-term fixed-rate mortgage costs is a small bit of welcome news for hard-pressed households facing significant pressures on their finances from the higher cost of food and fuel, in particular," said Mr Coogan.

"However, borrowers on tight budgets will have to plan ahead to manage higher mortgage payments than they have been used to.

"'Speak to your lender early' remains the advice for anyone struggling to pay."