Mortgage lending slumped by 19 per cent in the year to May, as first-time buyers faced increasing difficulties in securing new home loans from cautious banks.

Gross mortgage lending reached an estimated £25.5 billion, signalling a 19 per cent fall compared with May 2007 when it totalled £31.5 billion. Compared with April, gross lending in May fell by 2 per cent.

The Council of Mortgage Lenders (CML) said that remortgaging activity remained strong, implying that existing homeowners are supporting a market where first-time buyers are being forced to pay more to secure mortgages at increasingly expensive rates.

Times Online revealed yesterday that UK mortgage lenders have raised interest payments and arrangement fees on a two-year fixed rate loan by nearly £1,300 in just six months, with banks changing their deals as many as 19 times since January.

In April, the average deposit paid by first-time buyers rose to 13 per cent - the highest level in over three years, according to the CML.

Earlier this year, the Bank of England set up a £50 billion Special Liquidity Scheme which the Government hoped would encourage lenders, hampered by the high cost of borrowing between banks, to cut rates for their customers.

Michael Coogan, director general of the CML, said: "The remortgage market remains on track to meet our forecast for growth this year, demonstrating the resilience of the market despite recent bad news.

"However, by comparison, the next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed.

"We still await first signs of the Bank of England’s Special Liquidity Scheme indirectly helping to ease the current log jam.”

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