Mortgage lending slumps in January

House purchase lending fell by 26% in January, according to new data from the Council of Mortgage Lenders.

The slump is being attributed to recent government spending cuts, rising inflation and tax increases. As a result, the squeeze on household budgets is likely to have discouraged potential house buyers.

Only 28,500 new mortgages were issued, 12% lower than the same period last year.

Alongside this the average deposit put down fell to 20%, the lowest level of downpayment for over two years.

The CML said the “substantial” fall was due to an “unusual combination of factors” which included bad weather during December.

However fears have now emerged that the property market could now be heading for a new downturn in activity.  

Michael Coogan, director general with CML, said: “Pressures on household budgets have been increasing both in terms of take home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011.

“The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months. The market remains stable at low levels of transactions.”