Mortgage lending drops by 38%

The number of mortgages approved for people buying homes dropped by 38% in December, compared to the same month a year earlier, figures from the British Bankers' Association revealed today.

In a report that appeared to confirm a significant slowdown in the property market, the BBA said that overall mortgage lending in December was ?14.2bn, a drop of 3% from the previous month, and 10% from the same month last year.

The BBA's figures follow a report from the Bank of England earlier this month which said that November saw mortgage lending fall to its lowest level in a decade.

December is traditionally quiet in the property market, but the BBA said that the fall in the number of mortgage approvals across the board was particularly noticeable at the end of 2004.

David Dooks, BBA director of statistics, said: "This time of year sees a seasonal weakness in loan demand, but with approval volumes running well below those in the same month a year earlier, mortgage lending is expected to remain relatively subdued in the near-term."

Commenting on the BBA's figures, Howard Archer, chief economist at the investment firm Global Insight, said: "The further sharp fall in the number of loan approvals for home purchases reported by the BBA in December clearly points to further weak activity in the housing market in the early months of 2005.

"Latest data suggest overall that house prices are currently softening relatively slowly, indicating that the pressure on the sector coming from higher interest rates and stretched affordability rates is for now at least manifesting itself more in fewer transactions than in sharply falling prices. However, it is questionable whether this can remain the case," he added.

Earlier this week, the property website Hometrack's said that house prices had fallen in January for the seventh month in a row, by 0.4%.

However, publishing its monthly house price index yesterday, the Nationwide was more upbeat. The building society showed that house prices had risen by 0.4% in January, and said the slight increase showed signs of greater stability in the market. Alex Bannister, group economist for the lender, said that he expected the number of mortgages for homebuyers to increase from a low of 77,000 last November to around 90,000 to 100,000 a month in the near future.