Figures from the Council of Mortgage Lenders, whose members make up around 98% of all residential mortgage lending in the UK, show that in November residential lending was an estimated £14.6 billion, a 22% fall from October and a 51% fall from November last year. Mortgage rationing has left many borrowers unable to take advantage of interest rate cuts as lenders' margins on fixed and tracker rates have soared.

 

While there is typically a decline from October to November, this year it is considerably larger than usual reflecting the market disruption and continued deterioration of confidence in the economy.

 

Banks and building societies have almost trebled the margin on fixed rate deals over the past year – from 1.12% above funding costs in December 2007 to 2.92% now, according to financial information specialist Moneyfacts.

 

Looking ahead to 2009 there is not much hope of improvement. Forecasting in the current economic climate is challenging, the organisation points out and predictions need to be seen as indicative, rather than as a precise assessment of likely activity.

 

Over that period the bank rate has fallen from 5.5% to 2% and money market funding has also dropped, with Libor down from 6% to just under 3%.

 

'In looking ahead to the coming year, the housing market will remain extremely subdued and net mortgage lending is likely to turn negative. Repayment problems will worsen against the backdrop of rising unemployment but lenders and government are working to try to reduce the negative impact on borrowers,' said CML director general Michael Coogan.

 

Meanwhile, the gap between the best average two-year tracker mortgage and two-year fixed rate is now eight times as big as it was a year ago, increasing from 0.14% to 1.16%.

 

'Recent glimmers of light in terms of government intervention to improve conditions to support new lending are helpful, but more will be needed. Next Year will be a challenging time, but borrowers who remain in employment will see some benefits in the form of lower mortgage rates,' he added.

 

Banks and building societies have repeatedly raised deposits and pulled their best tracker rate deals following bank rate cuts, to avoid being overwhelmed by demand.

 

This week, the Council of Mortgage Lenders said that mortgage rationing will continue in 2009 and forecast that next year will see more money repaid than lent out for the first time.

 

Lenders have defended themselves against criticism for not lowering rates for new borrowers as the bank rate falls, by saying that it is the cost of funding on the money markets that is important to mortgage pricing not the bank rate.

 

However, their margins above the important Libor figure for variable rate mortgages and the swap rates that determine fixed rate deals have increased substantially.