Mortgage lending has fallen to its lowest level since April 2001, new figures have revealed.
Mortgage lenders issued an estimated £12.4 billion in January, down 52% from the same month last year, according to the Council of Mortgage Lenders (CML). It says this is the lowest monthly total since April 2001.
The figures appear to rule out any sign of a housing market recovery in the next few months, despite reports of increasing buyer interest and lower mortgage rates.
Bob Pannell, head of research at the CML, says: "Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months."
He adds that even when conditions improve, mortgage lending will be one of the later parts of the economy to recover.
The historically low Bank of England base rate has helped bring mortgage rates down; however, lenders are still requiring large deposits from borrowers, which is now a major barrier to homeownership.
The average deposit required on a fixed-rate mortgage product is currently 24%, according to MoneyExpert.com, compared to 11% this time last year.
And lenders continue to restrict the most competitive deals to people with even bigger deposits.
Moneyexpert.com says that there are currently only 17 fixed-rate mortgage deals available for people with a deposit of 10%. This time last year there 407 products for borrowers with deposits of less than 5%.
Sean Gardner, director of MoneyExpert.com, says banks are still not prepared to lend to people without substantial deposits, despite the banking bailout.
"Even though house prices have fallen many would-be borrowers are no nearer to qualifying for a loan," he adds. "There are excellent value mortgage rates out there at the moment but only for borrowers with large deposits."
According to MoneyExpert.com people with a typical mortgage of £150,000 will have to find an extra £19,500 to get access to fixed rate deals now compared to last year
Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, believes the Government must do more to force banks to lend.
"The health of the wider economy is inextricably linked to the health of the property market, and the property market, despite the fact that interest levels are up, is still very unwell," he explains.
Restrcited access to mortgages isn't the only issue hindering a housing market recovery in the short-term. Concern about falling house prices, plus the recession and its associated rise in unemployment, is holding people back from buying property.
"People suspect that now and the months ahead could be the ideal time to buy property," explains Jason Bolton, spokesman for financial advice website Rubii.co.uk. "The issue, as ever, is can prospective buyers get a mortgage and will they commit to a purchase anyway given the febrile state of the economy?"
