Mortgages are fewer and smaller

Fewer people took out mortgages in January and those who did borrowed less, according to the latest figures from lenders.

The number of loans for house purchase made in January fell 19 per cent from December, continuing a downward trend, the Council of Mortgage Lenders (CML) said in its report.

Additionally, the value of loans taken out fell to £7.8 billion, a 17 per cent fall from £9.4 billion in December and 31 per cent lower than £11.2 billion in January 2007.

The report shows lenders are taking a cautious approach to lending, reflecting the recent market turmoil.

First-time buyers typically took out loans for 88 per cent of the property's value in January, down from 90 per cent in December and January 2007.

The data also show the average first-time buyer borrowed 3.32 times their income, down from 3.38 in December and 3.31 in January last year.

But there was an increase in remortgaging activity with 85,000 remortgages, up by 43 per cent from 59,000 in December.

CML director general Michael Coogan said: "The wholesale funding markets remain largely closed and mortgage funding still remains constrained. This is now having a discernible impact on lending criteria and the ability of first-time buyers to get into the housing market."

Alistair Darling is due to announce the Treasury's housing finance review tomorrow as part of the Budget and is expected to publish plans to grade all UK mortgages on risk.

The move is designed to restore confidence in mortgage-backed securities, which plummeted following the US subprime crisis.

However, the CML is sceptical about any government grading of mortgages.

"We are unconvinced that a new kitemark 'gold standard' for mortgage securities is the solution, or that consumers will move to longer term fixed-rate mortgages without financial incentives," Mr Coogan concluded.