UK home loan approvals fell by -52% from a year earlier in October, according to the British Bankers’ Association (BBA), as a Treasury report forecasted net new mortgage lending may fall below zero next year.

Banks granted 21,584 loans for house purchase in October 2008, which is a fall of 7.7% from September. The value of mortgages for homebuyers fell to £2.8bn in October from £7bn in October 2007.

The seizure in credit markets has reduced banks’ capacity to lend, even as the Bank of England (BoE) cut interest rates to the lowest since 1955. New mortgage lending will probably fall to below zero next year, according to a report by James Crosby, former HBOS Plc chief executive.

The Crosby Report said: ‘Much lower base rates will help borrowers but will do little for the availability of mortgage finance. In such an environment, there are very few banks with the capacity to increase lending.’ Only ‘a modest recovery’ is likely in 2010, according to the Crosby report.