Mortgage lending dives 70% to second lowest figure on record as new bank collapses

Mortgage lending falls to second lowest figure on record

London Scottish Bank goes into administration

Manufacturing shrinks at record pace

Mortgage lending plunged 70 per cent in just four weeks, figures revealed yesterday. 

As homeowners face their biggest battle to get a loan, net lending collapsed in October to just £459million, compared with £1.5billion in September. 

Net lending is the difference between money lent to new homeowners and repayments from existing homeowners. 

A recent Government report has said that in the current mortgage drought net lending could turn negative next year for the first time. 

Yesterday's figures, from the Bank of England, spell out the misery facing anybody trying to sell a home. 

With so few loans being handed out, families up and down the country who desperately need to sell cannot find a buyer, even if they slash the price. 

If the banks do not start handing out money, Britain faces plunging into a much more painful recession, the Bank's Governor Mervyn King warned last week. 

Banks insist they are not closed for business but are being noticeably more cautious about handing out loans. 

The cheapest mortgage deals now require a 40 per cent deposit. All 100 per cent loans have been scrapped. 

However, the lending collapse has been brought about not just by banks' caution but also because many customers do not actually want a loan now and are choosing to sit things out while prices fall further. 

Yesterday - only days after the Government spent billions of taxpayers' money bailing it out - Royal Bank of Scotland tried to appease taxpayer fury by promising not to repossess a home until the lender was at least six months in arrears with mortgage repayments. 

Nevertheless, repossessions are predicted to rocket to 45,000 this year - up 70 per cent on last year.. 

Economists were also forecasting gloom yesterday. Ed Stansfield, of the consultancy Capital Economics, said: 'Activity levels will remain close to rock bottom levels for several months yet and house prices will fall markedly further.' 

The figures came as specialist financial services group London Scottish Bank said today that it had gone into administration.

The Treasury confirmed that it would protect all retail deposit savings with the bank - including those with deposits above the £50,000 maximum limit.

The Manchester-based bank said it was forced to call in administrators after suffering a shortfall in regulatory capital and was unable to find a firm buyer for the business in time.

The bank has around 10,000 savers with some £250 million in deposits.

There are also more than 700 staff at the bank, which offers fixed-rate savings accounts and lends money to people with poor credit histories.

The Chancellor confirmed all eligible depositors under the Financial Services Compensation Scheme (FSCS) would be not lose their savings.

Administrators said all 10,000 depositors are eligible under the scheme.

London Scottish had been hoping to secure a sale after it struggled with a multimillion-pound hole in the amount of capital it is required to hold by regulators.

Shares in the group were suspended today at 2.62p having lost almost all of their value amid its financial problems over the past year.

Adding to the bleak economic news, manufacturing activity shrunk at a record pace last month as fresh figures fuelled fears today about the depth of the UK recession.

The latest purchasing managers' index for the industry showed a reading of 34.4 in November - the lowest level in the survey's near 17-year history.

Output, new orders and employment all hit new lows as the sector continued to struggle in the economic downturn.

The data marks the seventh consecutive month of falls for the sector and was below City forecasts of 39.7.

On a rare brighter note though, the number of mortgages approved for house purchase has remained stable for the past four months.

Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level.

Howard Archer, chief UK and European economist at IHS Global Insight, said: 'An extremely weak set of Bank of England mortgage approvals and lending data suggest that house prices still have a long way to fall.  continues here

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