The introduction of tougher lending criteria by many mortgage companies has had a detrimental effect on the housing market, a group warned recently.

A report by mortgage firm mform.co.uk warned that it had become much harder for people to find mortgages following the global credit crunch. Doubts about the sub prime mortgage market have led to mortgage lenders becoming much more wary of the risks involved with this sector of the market.

It said that lenders were increasingly becoming far more conservative about the amount of money they were willing to advance to both new customers and those looking for a new deal after coming off a low introductory interest rate. This will almost certainly lead to huge increase in the number of people being turned down for a mortgage.

Many lenders have recently reduced their LTV (loan to value) ratios from 95% to 90%, with many others moving out of the 100% mortgage market altogether.

The report went on to say that many first time buyers now had to find deposits of 10% in order to be offered a mortgage. It warned that if first time buyers had to delay getting on to the property ladder, while they saved up larger deposits, it would inevitably lead to a drop in demand and subsequent fall in house prices.

The total amount of mortgage lending in December 2007 was 21% lower than it had been in December 2006.

Mform.co.uk also said that although some of this fall had been driven by a fall in demand, there was no doubt that an increase in the number of people being rejected for a mortgage was also a contributory factor.

Mform’s marketing and business development manager Francis Ghiloni said: “The current credit crisis has made many mortgage providers much more choosey when it comes to deciding who it will lend money to.”

“With applicants struggling to meet lending criteria the property market may be in for a much quieter period of buying and selling then that seen in 2007.”

At the same time as the release of the report, research from the financial website MoneyExpert.com showed that 1.39 million homeowners had switched mortgages since June last year, despite the recent turmoil in the mortgage markets.

Chief executive of MoneyExpert.com, Sean Gardiner, said: “The uncertain financial climate of the last six months has forced many people to reassess their household budget with the mortgage top of the list of priorities.”

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