Mortgage lending to shrink by 20%

Market analyst, Datamonitor, is predicting that the UK mortgage market will shrink by nearly 20% this year.

Despite a flurry of rate cuts in recent weeks, which has seen average interest on two-year fixed-rate loans topple from a ten-year high, Datamonitor paints a bleak picture of the UK home loan market.

The credit crisis has reduced the number of lenders and products; mortgage costs have increased and more consumers are being refused credit.

The firm expects mortgage lending to fall by 19.3% during 2008, taking total advances down to £293.55 billion for the year.

By comparison, in 2007 total lending rose 5.4% year-on-year to £363.8 billion, building on growth of 19.7% seen in 2006.

In its report, Datamonitor suggests that the full impact of the credit crunch has yet to be felt by borrowers and while it expects growth to return in 2009, the estimate for the year is a subdued 3%.

Datamonitor is more optimistic about the effects of the credit crisis on credit card borrowing, personal loans and overdrafts and is forecasting a 3.2% cut in lending in 2008, followed by growth of 1.4% in 2009.

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