The UK mortgage market is expected to shrink by nearly 20% this year as the credit crunch continues to take its toll on lenders, according to a report.
Market analyst Datamonitor said the outlook for the UK lending market was bleak, with the ongoing problems caused by the credit crunch leading to fewer lenders operating, a shrinking number of products, higher prices and more consumers being refused credit.
The group predicts mortgage lending will fall by 19.3% during 2008, with total advances of £293.55 billion made during the year.
The figure is in stark contrast to growth of 19.7% recorded during 2006 when the market was booming, while advances rose by a further 5.4% in 2007 to peak at £363.8 billion.
Official lending figures from the Bank of England have been showing a steady decline in mortgage advances since the beginning of this year as the problems caused by the credit crunch intensified.
But there are signs that competition is slowly returning to the market, with a number of major lenders cutting their rates several times during the past few weeks.
Datamonitor said total mortgage advances reached just £149.5 billion during the first six months of 2008, 18.9% below advances made during the same period of the previous year.
It said with the credit crunch showing no sign of abating and lenders remaining cautious, mortgage lending looked set to fall by 19.3% during the year as a whole, followed by a further drop of 3% in 2009.
Karina Purang, financial services senior analyst at Datamonitor, said: "The consumer lending market has moved beyond recognition. Lending markets are currently beset by high market uncertainties with the ongoing credit crunch, falling house prices, rising arrears and repossessions and indebted consumers struggling to find credit."
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But she added that while the current market turbulence was causing problems for both lenders and consumers, it had enabled lenders to reprice their products to increase their margins.
