The number of mortgages approved for first-time buyers and home movers halved in the year to June, lenders reported yesterday, giving warning that the situation was set to deteriorate further as funding conditions remained difficult.

The number of home loans granted to first-time buyers sank to 18,100 in June, down by 8 per cent from May and 46 per cent lower than June last year, figures from the Council of Mortgage Lenders (CML) showed, highlighting the malaise in the housing market. Lending to home movers fell by 8 per cent during the month, with 29,100 borrowers getting a mortgage in June, down from 32,100 in May, and 64,100 in June last year - a decline of 54 per cent. The number of remortgage deals also slumped in June, with 75,000 home loans approved, down from 96,000 in June last year.

The home loan figures came as official figures showed that house prices slipped by 0.7 per cent in June, taking the total fall in the three months to June 30 to 1.1 per cent.

Bob Pannell, head of research at the CML, said that lending was unlikely to pick up. “Mortgage lending activity remains relatively weak and will decline further in the coming months as a result of funding constraints and lower consumer demand,” he said.

Property transactions have stalled as mortgage lenders have toughened their lending requirements in the wake of the credit crunch. Many lenders have increased their mortgage rates and are demanding larger deposits in an attempt to protect their profits. The average deposit paid by homebuyers rose to 22 per cent in June, up from 20 per cent in May, the CML said. The cost of the average fixed-rate mortgage also reached a three-month high in June, rising to 5.86 per cent, up from 5.82 per cent in May. A spokesman for the Royal Institution of Chartered Surveyors said this week that first-time buyers were fast becoming an endangered species.

But some large lenders, including Halifax, Nationwide, Abbey and Barclays, have begun to cut their mortgage rates. Figures released this week by the Bank of England showed that the average rate of a two-year fixed-rate mortgage deal for a borrower with a 25 per cent deposit fell to 6.36 per cent at the end of July, down from 6.6 per cent a month earlier. However, this is still far higher than the 5 per cent base rate.

Falling house prices are also prompting would-be buyers to wait to pick up a bargain. Speculation that the Government may cut stamp duty for first-time buyers could also cause a further dip in transactions, estate agents say.

House prices fell by 0.7 per cent in June, according to the Department for Communities and Local Government (DCLG), slowing the annual pace of house price growth to a modest 0.6 per cent, down from the 3 per cent annual rise seen in May. This is a rosier picture than that indicated by Halifax and Nationwide, which report hefty falls in house prices over the past year. However, although the DCLG's figures reflect housing transactions completed in June, the most recent Nationwide and Halifax figures reflect approvals in July. A DCLG spokesman said: “UK house prices are significantly higher than five years ago. The current issue affecting the market is largely about the supply of credit - a very different situation to the early Nineties, which was about high interest rates and unemployment.”

Money Central: the latest house price trends, region by region

Facts and figures

— The average homebuyer put down a deposit of 22% in June compared with 20% in May

— The average first-time buyer borrowed 3.33 times their income, with the average home mover borrowing 2.94 times income

— There are 71% fewer mortgages available now than a year ago

— Fixed-rate mortgages accounted for 69% of products taken out in June, up from 66% in May

Source: CML and Moneyfacts.co.uk

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