UK mortgage approvals fell to a fresh record low in November and banks reduced loans to households and businesses in the final three months of 2008 as a deteriorating economic outlook and falling house prices deterred lending, according to data from the Bank of England released yesterday.

Mortgage approvals fell to 27,000 from 31,000 in October, the Bank said. That was below expectations of 32,000 approvals and the lowest figure since the report began in 1999.

The Bank’s quarterly credit conditions survey, also published yesterday, showed that secured lending to households - largely in the form of mortgages - tightened again between October and mid-December and by more than had been expected in the previous survey.

The data came as Halifax, Britain’s biggest mortgage lender, reported that house prices were 16.2 per cent lower in the final three months of last year compared with the same period in 2007. That is the fastest pace of decline since Halifax began keeping records in 1983 and faster than during the recession and housing bust of the early 1990s.

Halifax reported that house prices tumbled by a further 2.2 per cent in December, after falls of 2.6 per cent in November and 2.4 per cent in October. Economists had forecast a 1.7 per cent drop in December and for prices to be 16.6 per cent lower over the past quarter compared with the year before.

The Bank said secured lending was expected to fall again in the next three months, and that unsecured lending - such as credit card debt - as well as lending to businesses had also been cut in the final quarter of last year.

Demand for mortgages and remortgage loans remained broadly stable over the period, while demand from businesses for loans for capital investment, mergers and acquisitions activity, and from the real estate sector fell.

“The further significant tightening of credit conditions for both households and corporates in the fourth quarter of 2008, and the expected continuation of these trends in the first quarter of 2009, bodes ill for business activity, investment, employment, consumer spending and housing market activity,” said Howard Archer, economist at Global Insight.

“Indeed, Bank of England governor Mervyn King has stressed that ongoing very tight credit conditions pose perhaps the most serious risk to the deeply struggling UK economy.”

The continuing weak economic data increase the likelihood of further rate cuts by the Bank next week.

Reported by:  Daniel Pimlott in Londo - Financial Times

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