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Mortgages - Number of Mortgages Lower than During 1990’s Crash

The number of homebuyers taking out mortgages has fallen below the number taking out new mortgages at the height of the 1990’s house price crash.

The Council of Mortgage Lenders has released figures which show that just 142,000 mortgages were completed in the first three months of 2008. This figure is alarmingly low, suggesting that the house price crash could be more dramatic than first expected.

To that figure into perspective, during the first three months of 1992, when the country was in the grip of a house price crash and the lowest number of mortgages throughout the 90’s were approved 146,000 mortgages were taken out.

The amount of mortgages taken out so far this year is the lowest in over 30 years, since 1975. In addition the number of house sales has reached its lowest point since records began.

Compared to last year when the property market was booming, the figures look even more bleak. In the first three months of this year, mortgages comprised some 29% of all lending. In the first three months of 2007, mortgages made up almost half of all lending.

Halifax and Nationwide, two of the major mortgage providers in Britain have both carried out extensive studies into the state of the current housing market. They found that house prices are falling year on year and estate agents are closing on a mere 150 properties per week.

Banks are facilitating the slump in the property market as they tighten up on lending and making credit harder to get hold of. Potential homeowners are finding it harder and harder to secure a mortgage deal, while at the same time many are put off buying amid fears that their property will fall in value.

The BBC carried out a study which found that 28% of Britons would welcome a fall in house prices, believing that current house prices are unrealistically high. However economists warn that many may be unaware of the wider economic implications that a housing crash will have.

First time buyers are finding it particularly hard to secure a mortgage as lenders are demanding higher deposits on housing purchases. Despite being able to negotiate lower prices, many first time buyers are struggling to raise enough finance.

The Council of Mortgages Lenders has released figures which show that in the first quarter of this year, first time buyers are borrowing on average 89% of the value of the property, meaning that they are having to raise slightly more than the 10% average deposit last year.

They are borrowing an average of 3.35 times their combined or individual income, a higher rate of borrowing compared to salaries, which was 3.32 in the same period last year.

Howard Archer, chief UK economist at analysts Global Insight, said: “Very low housing market activity seems certain to feed through to further depress house prices. Furthermore, the longer the credit crunch goes on, and the deeper and longer the UK economic slowdown is, the greater the danger will be that an even sharper housing market correction will occur.

“Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply over the next couple of years. Consequently, it is very possible that a drop of more than 20% in house prices could occur over the next couple of years.”