The UK’s financial markets are in something of a mess as a result of the global credit crunch, which made its way across the nation last summer. All areas of finance have been affected, such as loans, credit cards, and mortgages. Consumer confidence has taken a dive, the economy has been adversely affected, and lending conditions have become tighter than ever, as lender struggle to raise funds to finance their lending operations.

All of these factors have led to a significant slump in mortgage lending levels lately, according to recent reports. Recent figures indicate a 17% year on year drop in mortgage lending levels, as consumers find that they cannot afford to apply for a mortgage or cannot qualify for a mortgage deal in the current tight conditions, and lenders continue to tighten up their criteria and exercise increased caution over who they will lend to and how much they will lend.

In March mortgage lending levels came to £26.3 billion according to the Council of Mortgage Lenders, and this was a drop of £5.4 billion compared to the previous year. The Council of Mortgage Lenders stated: ‘Lending on completed transactions is currently running at levels considerably lower than a year ago. However, the picture for mortgage approvals for new business and prospective lending levels in the next few months is worsening. We await the eagerly anticipated announcement of further action by the Bank of England to respond to these rapidly worsening market conditions.’

An official from the CML also said: ‘Early action is needed if we are to be able to maintain a market in which UK borrowers continue to be able to access mortgage funds at reasonable prices. As mortgage costs increase, it remains important for any borrower with potential financial difficulties to speak to their lender as soon as possible, and preferably before they have missed a payment.’

One economist said that it was vital that something is done to encourage banks to lend to one another again in order to ease credit conditions, which he said was one of the major contributory factors to the slump. He said: ‘The low level of mortgage activity is not only a consequence of slowing demand for houses due to the elevated affordability pressures facing potential house buyers, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available. Furthermore, potential house buyers are now having to provide higher deposit levels, which is a particularly major problem for first-time buyers. The CML data therefore highlight the need for concerted, sustained action to try and get banks to lend to each other, so that more liquidity is available to fund mortgage lending and market interest rates come down.’

The government has put forward a £50 billion plan recently, which it hopes will increase confidence levels amongst lenders and will encourage them to start lending to one another again in order to boost movement in the money markets.

Recent additions:

• Could you be entitled to a break in monthly mortgage repayments?
• Mortgage lending levels remain subdued
• How will government help struggling homeowners?
• Mortgages could continue to get more expensive
• Abbey takes huge slice of the mortgage market

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