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As banks and building societies continue to tighten their lending criteria on mortgages and home loans due to the effects of the credit crunch, the amount of deposit required by someone looking to buy a house has increased once again, whilst the average income multiple which has been granted on a new home loan has decreased.

The latest figures from the Council of Mortgage Lenders (CML) show that, on average, a person buying a new house put down a deposit of 22 per cent during the month of June, an increase of 2 per cent on the previous month. The average loan size has also reduced against earnings levels, with someone moving house borrowing an average of 2.94 times their income, as opposed to 2.94 times last month. For first time buyers this figure was slightly higher, with an average of 3.33 times income compared with 3.35 times in May.

Overall, the total amount of loans granted in June fell by 4 per cent from the figure in May to £23.6 billion, but new loans are down by 32 per cent on the same time last year. The most healthy area of the mortgage market remains in the re-mortgaging sector, which is no real surprise as a large number of borrowers are reaching the end of their fixed rate cheap loans and being forced to look for an alternative deal. Re-mortgage deals accounted for 44 per cent of all mortgage business in June, with a total of 75,000 individual loans being granted, for a value of £10.3 billion.

Bob Pannell of the CML said “Mortgage lending activity remains relatively weak and will decline further in the coming months as a result of funding constraints and lower consumer demand. The majority of lending continues to be to people with larger deposits, which is prudent for borrowers and lenders in a slowing housing market.”

There is more bad news for families living in the UK today, who are struggling to budget their household bills and would welcome an interest rate cut to reduce the cost of their mortgages and loans, as the Office for National Statistics released the latest figures for the rate of inflation for the previous month.

The Consumer Prices Index (CPI) rose again during the month of July to reach a figure of 4.4 per cent, an increase of 0.6 per cent since June. This is much higher than anticipated, with most experts predicting the rate of inflation to be only at 4.2 per cent.

The overall figures for inflation have been distorted by above average price increases in food items and petrol, along with gas and electricity prices. The CPI rate for food products increased in July to 13.7 per cent, from 10.6 per cent in June and the rate of increase for gas and electricity bills is even worse, with the rate of CPI increasing to 16.1 per cent in July from 13.8 per cent in the previous month. The predictions from analysts is that the rate of inflation is likely to continue to increase over the next few months.

Vicky Redwood, an economist with Capital Economics, said “Even with the recent drop in oil prices it still looks possible that inflation will hit 5 per cent within two or three months as the latest round of utility price hikes affect the index.”

There could be some good news for those individuals with loans and mortgages however, as it is still possible that there may be an interest rate cut in the near future, due to the fact that the high rate of inflation is mainly due to external factors, rather than the overall economy.

Landlords in the UK are finding it increasingly difficult to maintain any profit from their property portfolios as the buy to let market is continuing to be hit by the effects of the credit crunch.

The first problem is that the number of lenders who offer buy to let mortgage loans has reduced along with the number of products they have available. The liquidity problems being faced by many lenders means that they are limited to the number of loans they are able to grant and as a result are focusing on the residential market, with the effect of reducing the number of available buy to let loan products from 4,384 twelve months ago, to a mere 307, an overall reduction of 93 per cent.

Of those buy to let loans which are available, interest rate costs have increased dramatically, along with rental coverage calculations, whilst loan to value ratios have reduced, meaning that landlords have to find a much larger deposit to fund their purchase and also face the prospect of reduced profits, unless they increase the level of rent charged on the property. Due to these factors, a landlord needs to increase the rent on his property by an average of 15 per cent in order to maintain the same level of profit.

These rent increases have caused further problems as tenants, many of whom are already finding times hard, are unable to meet the new monthly payments and, not surprisingly, Landlords have witnessed a worrying increase in rent arrears, with 13 per cent of tenants going into arrears and a further 50 per cent concerned about being able to pay the rent in the future. Many tenants are now considering buying a house rather than renting, as this is becoming a cheaper option for many, leaving Landlords with vacant properties generating no income, but high maintenance and loan costs.

If buy to let owners decide to get out of the market altogether they still face problems, as house prices are continuing to fall and the market is very weak at the present time. Many who bought recently could well see an overall loss on their investment if they sell at the moment. It seems that Landlords are in a no win situation currently and this does not seem likely to improve in the near future.

As the credit crunch really began to take hold of the UK economy at the beginning of this year, the Council of Mortgage Lenders (CML) issued a stark warning that up to 45,000 homes were likely to be repossessed through the course of 2008 due to borrowers failing to keep up with the repayments on their mortgages and home loans.

From the data which has been collected so far this year, the CML have now said that they are maintaining their previous prediction and also that the level of repossessions on properties has now reached the same level as it was in the late nineties. The CML have also predicted that 170,000 borrowers are likely to be in an arrears situation with their home loans by the end of the year.

During the first six months of this year, there have been 18,900 properties repossessed and this figure is likely to increase as many individuals are coming to the end of an initial fixed rate cheap loan, with little chance of being able to find a re-mortgage deal with a similar cost to their previous home loan.

In addition to this, there were 155,600 mortgages and home loans with more than three months arrears by the end of the first half of the year. The total number of repossessions for 2007 was 26,200 and the number of loans with three months or more arrears was 129,600.

The CML have said that these figures need to be taken in context with the whole of the UK mortgage market. There are 11.74 million mortgage loans currently and the figures above represent 0.16 per cent of these for repossession and 1.33 per cent of loans in arrears.

Michael Coogan of the CML said “The good news is that most people are coping well and continuing to pay their mortgages in full, despite the higher costs of food and fuel and the higher mortgage rates now prevailing in the market for those coming off cheaper original deals, but it is inevitable that more borrowers’ coping strategies will come under pressure in current conditions than in the unusually benign years of the last decade.”

Yesterday was once again the monthly meeting for the Bank of England’s Monetary Policy Committee (MPC), the group which decides, amongst other things, what the base rate of interest will be set at for the following month.

Each month, a large number of home owners await the decision whilst keeping their fingers crossed, hoping that they might get a reduction in the cost of their mortgage or home loan and praying that it won’t go up due a rate rise.

Well once again these people can breathe a slight sigh of relief as the MPC voted to maintain the status quo and keep interest rates unchanged at 5.0 per cent. The decision comes as no surprise to experts, who had already predicted that rates would stay the same. The last rate reduction was in April this year and further cuts, which would help the housing market and those individuals with loans and mortgages, have had to be postponed due to upwards pressure from rising inflation rates. In the US, the Federal Reserve also made the decision to keep their base rate the same at 2.0 per cent.

We do not know as yet how the voting in the MPC’s meeting went, as the minutes are not published until later in the month, but last month the committee was split, with some members calling for a rate cut to help those with loans and mortgages, some calling for a rise in order to curb inflation, whilst the majority vote was to leave rates as they were previously.

Michael Coogan of the Council of Mortgage Lenders said “Holding the Bank rate is better than raising rates, as one MPC member suggested last month, but a reduction would have been a welcome recognition of the current financial strains on households already struggling with hikes in other living costs.”

As the slowdown in the UK economy continues, this should ease the current pressure on inflation and once this returns to reasonable levels, we are likely to see renewed demands for an interest rate cut to help the loan and mortgage market, not only from borrowers, but from lenders also.