Mortgage lending slumps by 13%

The mortgage market has started the year on the back foot, with lending diving by 13 per cent in January.

A total of £9.2 billion was advanced during the month, down from £10.6bn in December and the lowest level since February last year, according to the Council of Mortgage Lenders (CML).

The fall is likely to have been caused partly by the severe December weather, which stopped people going house-hunting. But it also reflects the state of the market, as a combination of the high deposits required by lenders and the uncertain outlook for the housing market and wider economy suppresses demand.

Mortgage advances were 5 per cent higher in January than they had been in the same month of 2010, the first year-on-year increase since August last year. But the CML said lending levels in January last year had been distorted by people rushing to beat the end of the stamp duty holiday.

There is little sign of the mortgage market picking up in the near future, with a Bank of England report showing only 41,000 mortgages approved for house purchase in January. This was in line with December's figure, which was the lowest since March 2009 and 11 per cent below the level seen in November.

The CML warned that, even if mortgage demand picked up significantly this year, lending was likely to remain constrained, due to the £400bn to £500bn banks have to repay to public support schemes by the end of 2012.

It estimates net lending, which strips out redemptions and repayments, will be just £6bn this year, compared with the £8.15bn seen in 2010, which was itself the lowest figure since Bank of England records began in 1987.