The Council of Mortgage Lenders (CML) has found that home loans have fallen by eight per cent from £33.5 billion in October to an estimated £30.7 billion in November.

CML sees this decline as a clear sign that the market is slowing down, which can largely be accounted for by the global credit crisis which was sparked by the collapse of the American sub prime mortgage market in the summer, when thousands of families started to have their homes repossessed because they couldn’t keep up with repayments.

This is the first instance since 2005 of monthly lending levels dropping below the same month in the previous year, which CML is taking as a prediction for a further drop in lending into 2008.

The current credit climate is such that some lenders have reigned in more risky loans, such as those previously offered to people with bad credit histories, and others have withdrawn their entire sub prime product range.

Michael Coogan, director general of CML commented on the eight per cent drop: “As we had forecast, lending in November dipped below its 2006 – equivalent for the first time this year and we expect this trend to continue into 2008. However, while lending will be subdued in coming – months we see this as primarily a result of lack of available funding rather than lack of consumer demand.

“We welcome the recent initiative by the Bank of England with other central banks to inject liquidity. This support needs to continue, and be increased, in the coming months.”

This research comes as the Financial Services Authority has called for more liquidity control for banks and building societies, in order to prevent another liquidity crisis like that experienced by Northern Rock, which had a big stake in the sub prime mortgage market.

A long-awaited report from the FSA was released this week, which will instigate the first significant reform in Britain’s banking system since the crisis broke, and will improve the position of banks and other lenders which have the potential to get into trouble.

Thomas Huertas, Acting Managing Director of Wholesale Markets for the FSA, said: “Assuring adequate liquidity at all times is critical for a bank, and in this paper we recommend that banks take a belt and braces approach. The ‘belt’ is a comprehensive view of all the demands for funds that a bank could face as well as a plan to meet those demands. The ‘braces’ are a quantity of cash or assets that can be turned into cash at short notice even under stressed market conditions.”

He also said that the FSA wants to have “a constructive and intelligent debate with the industry about how – in the longer term – liquidity requirements can best, and most cost-effectively, achieve our objectives of consumer protection and market confidence.”

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