Mortgage lending’s record low hits homes market

The average cost of a home edged down by a further 0.1 per cent during the month to stand at £161,602 – 1.1 per cent less than in January 2010, according to Nationwide.

House prices have now fallen during five of the past seven months, and the group warned that the outlook for the property market was “highly uncertain”.

The problems the market faces were highlighted by figures from the Bank of England, which showed that net lending during 2010 fell to just £8.15bn, down from £11.33bn in 2009 and the lowest level since records began in 1987.

The figure was even worse than the £9bn that the Council of Mortgage Lenders had predicted, and lending levels are expected to fall further to just £6bn during the coming year.

The mortgage market finished 2010 on the back foot, with net lending contracting by £298m during December, as homeowners repaid more than lenders advanced.

It was only the third time that the Bank of England has recorded a contraction in net mortgage lending, and the fall was the second biggest ever seen.

Lending levels look set to remain subdued, with the number of mortgages approved for house purchase dropping by 10 per cent during December to 42,563 – the lowest level since March 2009 and well below the 70,000 to 80,000 approvals a month considered to be consistent with stable house prices.

Ratings agency Standard & Poor’s warned that the number of homes that are repossessed could increase significantly if the economy weakens further.

The group said one in five mortgages taken out by people with adverse credit records or limited credit histories were in arrears of more than 90 days at the end of September – double the level seen two years ago.

Credit analyst Mark Boyce said: “Our findings point to a severe arrears overhang which is, in our view, a troubling sign, and suggests that further economic stress could well lead to a considerable increase in repossessions in the medium term.”