Homebuyers continue to feel the squeeze from credit crunch

Mortgage lending fell by nearly 40 per cent last month as buyers continued to struggle to secure home loan deals.

Up to 38,704 mortgage deals were approved by banks in April - a slight improvement on the record low in March - but 39.4 per cent down on April last year and the second-lowest level on record, according to the British Bankers’ Association (BBA).

The BBA figures represent lending from UK banks, which accounts for about two thirds of Britain’s mortgage lending.

They come as further evidence emerged that households are tightening their belts as the impact of the credit crunch intensifies.

Net credit card lending fell by £300 million last month after rising by £400 million in March, the BBA said. This is a reversal of the six-month average of a £200 million rise in net lending.

Consumer service companies such as hotels, bars, restaurants, cinemas and gyms are also beginning to feel the squeeze as consumers cut their spending. The volume and value of sales fell more sharply in the past three months than at any time since the end of 2001, figures from the CBI showed.

A balance of 44 per cent more businesses said business volumes had fallen rather than risen in the past three months.

Howard Archer, of Global Insight, the economic consultancy, said: “The data suggests that many consumers either had little money to spare to spend on eating out, entertainment and pampering themselves after they had paid for their more expensive essentials such as food, utility bills and petrol, or were looking to cut back on the luxuries and improve their personal finances in the face of the deteriorating economic outlook.”

While households cut spending, potential first-time buyers are being forced to bide their time and save as lenders demand bigger deposits. Many lenders are maintaining their tight lending criteria after the credit crunch, offering the most competitive deals only to those who have 25 per cent deposit or more.

This, coupled with a desire among many families to build up a cash safety net in the present economic climate, resulted in a sharp rise in savings deposits. Personal deposits rose by £5.8 billion in April, up from a rise of £2.8 billion in March, and far above the six-month average of a £2.4 billion rise.

The average rate for a two-year mortgage deal for a borrower with the minimum 5 per cent deposit is now nearly 7 per cent, up from 5 per cent two years ago, according to recent figures from the Bank of England. Experts said the lack of first-time buyers will continue to drag down house prices as other home movers find it more difficult to move up the ladder.

The large numbers of homeowners coming to the end of their short-term mortgage deals also prompted a rise in the number of remortgage deals that were approved. Some 74,722 remortgage deals were approved in April, up from 60,410 in March and 20.3 per cent more than in April last year.