Mortgage approvals down 70% in June

Mortgage approvals in June fell 70 per cent from last year to just 36,000, figures from the Bank of England show today.

According to the Bank's figures, the increase in total net lending in June of £4 billion was below the increase in May and well below the six-month average of £7.5 billion.

Only 36,000 home loans were approved for house purchase, compared to 114,000 a year ago. This is the lowest level since records began in 1993.

The value of mortgages has also dropped - down from £17.3 billion in 2007 to £5 billion this year.

Simon Rubinsohn, the Royal Institute of Chartered Surveyors' (Rics) chief economist, said: "The latest numbers from the Bank of England demonstrate in the clearest possible way the consequences of the credit crunch for the residential property market.

"Unless the authorities take steps to restart the mortgage market, the likelihood is that there will be more bad news in store for the both the housing market and the retail sector during the latter part of the year."

The government commissioned a report from former HBOS head Sir James Crosby to find ways of stimulating the mortgage market.

The report, published earlier, suggested there should be little direct government intervention in the sector, with the market left to determine prices.

In this manner a correction to curb previous excesses can take hold.

Borrowing rates are falling across the industry and the growth in net consumer credit in June of £0.9 billion was also below the six-month average of £1.2 billion.

"The Bank of England data graphically highlight that housing market activity continues to be throttled by stretched affordability and tight lending conditions," commented Howard Archer, chief economist at analysts Global Insight.

"Elevated affordability pressures on potential house buyers stem from high house prices and modest disposable income growth, while very tight credit conditions have led to markedly fewer and more expensive mortgages being available."

In contrast, people are saving more, according to the Building Societies Association (BSA).

Building societies achieved record savings inflows of £6.3 billion in the first half compared to just £3.86 billion in the first six months of 2007.

Adrian Coles, director general of the BSA, said: "With an uncertain economic outlook and stock market turbulence, savers are wisely viewing building societies as excellent homes for their money."

Daniel Barnes