The “dismal” state of the mortgage market was confirmed yesterday with the release of latest figures from the British Bankers’ Association (BBA). The number of mortgages approved by the major banks fell to 21,086 in August, the lowest monthly total since the BBA started collecting the information in 1997, and down about two thirds on the same month last year.

New home loan approvals are running some 12,000 lower than the average of the previous six months. Mortgage lending amounted to £2.1bn in August, less than half the average level of £4.7bn for the previous six months.

The BBA put part of the blame for the slide on the uncertainty surrounding the Government’s policy on stamp duty, though they also acknowledged that the demand for new mortgages, as well as the supply, was slipping as house prices drop around 12 per cent a year: “Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government’s announcement on stamp duty all suppressed or delayed demand in August,” said BBA statistics director David Dooks.

Disappointment about the state of the property market is widespread in the industry. Simon Rubinsohn, the Royal Institution of Chartered Surveyors’ chief economist said: “This is not altogether surprising, given that speculation was rife during the month about a possible announcement on stamp duty.

“The subsequent decision by the government to widen the zero band on stamp duty, albeit only temporarily, alongside the introduction of a series of more competitive mortgage products by lenders, should have helped bolster interest in the housing market this month. But these developments are likely to have been overshadowed by concerns stemming from the turmoil in financial markets.”

After several weeks of dithering and conflicting signals from Number 10 and the Treasury, the Government announced on 2 September that they would for one year exempt from stamp duty all property transactions worth £175,000 or less. However, many observers believe that the damage had already been done and that, even after recent house price falls and the stamp duty holiday, property remains expensive by historical standards and in relation to depressed disposable incomes.

Michael Saunders, economist at Citi European Economics, commented: “These data fit in with other signs that the UK housing market remains in freefall, hit by stretched valuations, the credit crunch and understandable worries among the general public over prospects for jobs and incomes. “This is a really dismal set of mortgage data,” added Howard Archer at Global Insight. “Given these very poor fundamentals, the recently announcedgovernment measures to support the housing market are very unlikely to have any significant impact. We continue to expect house prices to fall by15 per cent in 2008 and 12 per cent in 2009, and see the risks to these forecasts significantly increasing, given the heightened financial sector turmoil and markedly rising unemployment.”

According to research from mform.co.uk, an online mortgage company, there are now only 36 deals available directly from lenders to first-time buyers looking to borrow more than 90 per cent of the value of a property.

By Sean O’Grady, Economics editor

>News reported by The Independent

JP Morgan Chase, the third-largest US bank, says it has sustained $1.5bn (£0.8bn) in losses related to the sub-prime crisis since the end of June.

That was more than the $1.1bn write-down the bank took on mortgage-linked assets in the April to June quarter.

JP Morgan said trading conditions had “substantially deteriorated” – a sentiment echoed by its rivals.

Wachovia, the fourth-largest US bank, said it lost more money than previously thought in the second quarter.

The bank said its losses for the quarter now totalled $9.11bn, up from the $8.86bn originally reported.

Wachovia will also cut 600 jobs on top of the 6,950 it had previously announced as the housing market deteriorates

Mortgage exposure

Last month, JP Morgan reported that second-quarter profit had fallen 52% to $2bn.

At the end of June, it held roughly $33bn worth of exposure to the mortgage market, including $1.9bn directly related to sub-prime mortgages lent to those with patchy or poor credit histories.

“Mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers,” the bank said.

The New York-based company, which bought struggling Bear Stearns in May, had been thought to be weathering the credit crunch better than its peers.

News reported by The BBC

The number of loans granted for house purchases in the UK in June fell to fewer than half the number made in the same month a year ago, figures show.

Some 47,000 home loans were granted compared with 98,000 in June 2007, and also down from 52,000 in May this year.

The figures from the Council of Mortgage Lenders (CML) indicate that the mortgage squeeze, caused by the credit crunch, is continuing.

The CML added that the slowdown in mortgage lending was likely to go on.

“The majority of lending continues to be to people with larger deposits, which is prudent for borrowers and lenders in a slowing housing market,” said CML head of research Bob Pannell.

Deposits

The figures show that the average homebuyer put down a deposit of 22% in June. These new borrowers had an average age of 35.

“Mortgage lending activity remains relatively weak and will decline further” Bob Pannell, CML

Fixed-rate mortgages get cheaper

In May this year, and in June 2007, the average deposit was 20% showing that lenders are tending to favour safer borrowers.

This is the result of banks and building societies limiting the amount they offer in loans owing to funding shortages caused by the credit crunch.

“Mortgage lending activity remains relatively weak and will decline further in the coming months as a result of funding constraints and lower consumer demand,” said Mr Pannell.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, agreed that the market would remain flat.

“Loans for house purchases remain subdued with first-time buyers under particular pressure,” he said.

“Any early relief for homebuyers in the form of a cut in interest rates is unlikely following the bigger-than-expected jump in inflation.”

Wide effect

The effect of the squeeze has been felt across the board, with an 8% decline in the number of home loans to first-time buyers and a 9% fall in loans to home movers in June compared with May, the CML said.

First-time buyers are having to find larger deposits for good deals

The average first-time buyer borrowed 3.33 times their income, with the average home mover borrowing 2.94 times their income.

With borrowers looking for certainty during a time of fluctuating mortgage rates, an increasing share of new home loans are fixed-rate mortgages.

Nearly seven in 10 new loans are fixed-rate deals and the CML believes this could increase because of the falling costs of these loans in recent weeks.

But the cost remains relatively high compared with before the credit crunch took effect, and so the number of homeowners remortgaging has fallen. Some 75,000 loans were granted for remortgaging in June, compared with 77,000 the previous month and 96,000 in June 2007.

With people looking for help in searching for a good deal in the uncertain market, there have been more mortgages obtained through an intermediary – such as a mortgage broker – in 2008 compared with previous years.

The proportion of home loans found through intermediaries in the April to June quarter was 78% for first-time buyers, 61% for home movers and 65% for people remortgaging.

These percentages were higher than the same quarter in 2007, but lower than in the first three months of 2008.

News reported by The BBC