Mortgage lending in the UK economy is predicted to fall dramatically in 2008 and continue to decline in 2009, as the credit crunch refuses to loosen its grip, according to new research.

Independent market analysts Datamonitor argue just £293 billion will be lent in mortgages during 2008, a 19.3 per cent fall from the peak figure of £363 billion recorded in 2007.

Furthermore, just £284 billion will be lent the following year, 2009 – a further fall of three per cent, according to the Datamonitor predictions.

“In current uncertain market conditions, it’s neither good to be a lender nor a borrower,” comments Karina Purang, financial services senior analyst at Datamonitor.

According to Datamonitor the UK lending market has now changed beyond recognition; with fewer operating lenders, a shrinking number of products, higher prices and more customers being refused credit.

While the current market turbulence is proving difficult for both lenders and consumers, it has, nonetheless, provided lenders with the opportunity to reprice their products higher and reap higher margins.

On the other hand, consumers continue to be saddled with high levels of personal debt, facing rising household bills with many falling behind repayments and struggling to find further credit.

Levels of consumer credit have also been taking a battering as a result of liquidity constraints.

However, the results have not been as dramatic as the mortgage market – as the mature consumer credit sector will continue to see lenders tightening their lending criteria, seeking good quality customers and focusing on their own customer base.

Datamonitor estimates this market will contract by 3.2 per cent to £199 billion in 2008 and will pick up slightly by 1.4 per cent in 2009 – driven mainly by spending on cards, personal loans and overdrafts to account for £201.8 billion.

On the whole, total new consumer lending – mortgages and consumer credit – will contract by 13.5 per cent in 2008, amounting to £492.5 billion, compared to the £569.3 billion in 2007.