The Council of Mortgage Lenders (CML) has reported a decrease in mortgage lending of 26% on both total amount loaned and the number of loans made for January 2011 as compared to December 2010.

A drop is normally expected at this time of year as many completions will have been made prior to Christmas then there is a gap in housing activity with mortgage lending starting in earnest again in February/March as chains of house movers come together. The amount loaned in January, £4.2 billion, is also 13% less than in January 2010.

But this drop is very marked and some people are already wondering if this is a precursor to a major correction in prices.

The average mortgage loan to value offered to first time buyers has increased according to the CML from 77% to 80%, which may indicate that mortgages are a little easier to come by. But the average FTB is now 37 years old with a family in tow and has to save up far more for a deposit than previous generations as a proportion of their wages.

Recently the coalition had a crisis meeting with lenders and made it clear that they wanted more finance for FTB to keep the housing market going. So they obviously think it's a lending issue.

Actually it's just a wage to house price issue. House prices at an average of £162,692 (average of Halifax/Nationwide averages) is still a factor of 6.26 times the average wage. That does not make for a sustainable housing market.

But consider if prices were to drop say 30% overnight, the estate agents would once again be flooded with potential buyers, which would have the effect of keeping prices up.

As house prices fall they will always enter a bracket where some of those with the money think it's the right time to get into the market.

So prices will inexorably fall, but even with higher taxes and less consumer confidence it will be more glacial than precipitate. Unless that is the market is flooded with forced sellers who must sell at any price and buyers who just cannot meet any price above a 30% discount on current averages.

Look at the graph below and you will see that prices took 21 months to drop 20% between mid 2007 and the beginning of 2009. Then they went back up.

So don't bank on picking up a bargain basement 3 bed semi for some time to come.

HPI to Feb 2011

HPI to Feb 2011

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