The slump in mortgage lending across the UK continued in July and will get worse in coming months, according to the latest figures published yesterday by the Council of Mortgage Lenders.

The slump in mortgage lending across the UK continued in July and will get worse in coming months, according to the latest figures published yesterday by the Council of Mortgage Lenders.

Total lending for July stood at £24.8bn, up by 5% from June, but still 27% lower than the same month a year ago. Potential buyers have been finding it increasingly difficult to secure loans as lenders tighten their criteria in the wake of the US sub-prime mortgage crisis.

However, competition may be slowly returning to the market, with a number of major lenders cutting their rates in recent weeks.

House sales in the UK have dropped by 50% this year and there are indications that they will probably fall further.

"While there was a small month-on-month increase in activity, it represented a notable decline from a year ago," said Bob Pannell, the council's head of research. "This continues the weaker picture seen in June and points towards the more subdued levels of lending we are likely to see in the second half of 2008," he added.

Pannell's comment came a day after Kenneth Rogoff, the chief economist to the International Monetary Fund between 2001 and 2004, said the credit crisis is not over. He told an audience in Singapore that "the financial crisis is at the halfway point, perhaps".

Now an economics professor at Harvard University, Rogoff added: "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks."

Although the Scottish housing sector has fared better than the English market, builders are reporting a fall-off in sales because potential buyers cannot secure mortgage funds from banks and other lenders.

The CML said its mortgage lending figures, which are based on completions, are expected to get worse because the Bank of England said last month that mortgage approvals had plummeted by more than two-thirds in a year.

Mortgage approvals were down from 41,000 in May to just 36,000 in June - the lowest level since records began in 1993, the Bank said.

The bulk of mortgage lending this year has been to people who are not, in fact, moving house. Those without big deposits have little chance to buy a home with many first time buyers effectively shut out of the market.

Previous figures from the CML have shown that so far in 2008, only 29% of mortgage lending has been to house buyers. The rest has been to people staying put but moving to new mortgage deals, such as former customers of the troubled bank Northern Rock, or to people borrowing extra sums against the value of their homes.

The situation was different a year ago. During 2007, lending to home buyers was a much higher proportion of total mortgage lending, at 43%.

The slump in home buying in the past 12 months is highlighted by the fact that in June this year, loans for home buyers were less than half the number seen in June 2007.

A separate report predicted that mortgage lending would shrink by nearly 20% this year. Market analyst Datamonitor said the outlook for the mortgage market was bleak, with fewer lenders in operation, fewer products available, and higher interest rates and tighter lending criteria.

The group forecasts a fall of 19.3% in lending during 2008, with total advances of £293.6bn being made during the year.