Bleak midwinter for home loans

Fears that 2005 will be a bleak year for the housing market were fuelled by new figures showing that mortgage lending has slumped and house prices are continuing to fall.

The British Bankers' Association, which represents the high street banks, said mortgage lending rose by only £4bn last month, the smallest increase for almost three years.

Meanwhile, the Royal Institution of Chartered Surveyors (Rics) said the number of member firms reporting house price falls was its highest for 12 years.

The weak mortgage data follows other downbeat surveys and confirms that the housing market "is ending 2004 on a whimper", said Howard Archer at consultants Global Insight. "It seems certain, therefore, that house prices will see further weakness in the early months of 2005."

The figures provide fresh evidence that, after five interest rate rises, the housing market is slowing sharply. Many would-be buyers have been priced out of the market or have decided to carry on renting while they wait to see what happens to property values.

The BBA said last month's £4bn rise in net mortgage lending was the weakest since January 2002. Its comments were supported by the Council of Mortgage Lenders, which said 85,000 loans for house purchase were granted last month. That is the lowest for more than 18 months and represents a fall of 25% from the November 2003 total of 113,000.

However, remortgaging remains strong, accounting for almost 50% of the total lent.

Michael Coogan, the director general of the CML, said it was "inevitable" there would be a decline in future activity.

"January and February are traditionally weaker months for lending, so we expect the figures to reflect a market slowdown until spring," he added.

Separately, building societies said mortgage approvals - loans agreed but not yet made - fell to £3bn last month, a far cry from the £3.9bn notched up 12 months earlier.

"We expect 2005 to be, overall, a much quieter year than the one just finishing," said Adrian Coles, the head of the Building Societies Association.

The house price gloom shows no sign of abating, with 48% more chartered surveyors reporting price falls than rises. This is a much bleaker assessment of the market than even a few months ago, and the biggest number reporting falls since December 1992.

In its latest survey, Rics said the number of unsold properties on surveyors' books had risen for the sixth consecutive month. Sales have slumped: the three-month period to November 30 saw surveyors achieving an average of 22 sales each, down almost a third over the last year and the lowest figure since the summer of 1995.

Rics said its members were fairly optimistic, however. The body expects house prices to rise 3% next year. Spokesman Ian Perry said this was traditionally a quiet time of year, adding that the Bank of England's decision not to increase interest rates again had boosted people's confidence to some extent.

"Sales usually pick up in the new year, and I am confident that this year will be no exception," he said.

His comments came after property website Rightmove said the market needed a winter sale with prices cut by up to 8% in order to jump-start it.

It said asking prices were typically down a "meagre" 0.3%, or less than £600, and that this was not enough to tempt buyers back.