New home loans fall to thirteen year low

New figures from the Bank of England show that at the end of last year, loans for new homes were at their lowest level for 13 years.

In December, 73,000 new home loans were approved, 37% fewer than in December 2006 (117,000).

The figure is below the 79,000 forecast and compares with 81,000 new mortgage approvals in November, making December the seventh straight month in which new mortgage approvals have declined.

The news confirms the slowdown in the housing market and also comes alongside a warning from the Financial Services Authority.

The regulator has estimated that over one million homeowners could face financial difficulties in the coming 18 months.

Of this group, around 150,000 are believed to be at serious risk of repossession, given that when they took out their mortgages they met the following “high risk” criteria: a deposit of 10% or less; a mortgage over more than 25 years; borrowing more than 3.5 times annual salary.

The December new loan figures are likely to put pressure on the Bank of England to cut interest rates again next week.

Economists are forecasting a 0.25% reduction in the base rate in February, followed by three subsequent reductions during the remainder of 2008.

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