Mortgage market contracts 71%

There are now 71 per cent fewer mortgages on the market than a year ago, as the credit crunch's full force is revealed.

Data from Moneyfacts.co.uk show in August 2007 there were 13,027 mortgage products available. There are now 3,748 deals on the mortgage.

Over the last year the size of loans has also dwindled – with an average maximum of 90 per cent loan-to-value (LTV) shrinking to 80 per cent LTV and the number of firms offering 100 per cent mortgages falling from 33 to just two.

While 11 companies offered deals over 100 per cent last year, no lenders do now.

As the number of deals on the market falls, rates and mortgage fees have increased.

The average rate on a two-year fixed rate mortgage has risen from 6.56 per cent to 6.90 per cent, while three-year fixes are up from 6.54 per cent to 7.13 per cent.

Average two-year tracker rates are up from 6.39 per cent to 6.58 per cent.

The rises come despite the Bank of England dropping rates from 5.75 per cent to five per cent – thus showing the effect of rising inter-bank rates as funds have dried up.

Fees on two-year fixed deals and trackers are also up 20 per cent and 3.8 per cent respectively.

Michelle Slade, analyst at Moneyfacts, said: “One year ago the financial world changed completely as the credit crunch took hold. Today the world of mortgages is a completely different place.

“The standard factors which usually determine the rates at which mortgage rates are set, including bank base rate, swap rates and Libor rates are all much lower than this time last year, yet the rates on offer are much higher."

She added: “As house prices continue to fall and the risk of default increases, the lenders are pricing more for risk and as a result these standard factors are not quite as influential on the rates as they once were."

However, she claimed the mortgage market should continue to improve from its current position.

"The number of products will steadily increase and rates will lower with increased competition between lenders. However, it will be a while before lenders regain a healthy appetite to lend with the maximum LTVs on offer largely determined by the future decline in property values," Ms Slade said.

“With all the above said it is highly unlikely that we will ever get back to the same levels that we were at a year ago.

“In the last month numerous lenders have cut rates, so borrowers looking for a new deal can take some comfort from the fact that the situation is steadily recovering.”