Net mortgage lending is the litmus test by which many assess the health of the UK economy. To explain, it’s the figure putting borrowing against the value of mortgages repaid. It’s argued this figure above all others tells us two things: how the country is feeling and the likelihood of growth in the housing market (and therefore the economy as a whole).

By this measure the newly released figures from the British Banking Association (BBA) make grim reading. Net mortgage lending in the 6 months to February was a big fat £0. Perhaps even more worryingly, in February itself repayments out-weighed new lending by £982 million. It’s also the first time since BBA records began in 1997 net mortgage lending has remained at zero for more than three consecutive months.  And whether February’s figure is the start of a trend remains to be seen but the figures as they stand should give us all cause for concern.

February’s figure is startling for another reason: it marks the biggest reduction in mortgage lending for more than 15 years. Link that to our current low interest rate environment and you can see people are choosing to make high repayments to their current mortgages.  But it’s not just low interest rates. The BBA figures underline the current mood of economic uncertainty. People are feeling cautious. If you‘re self-employed or contracting it can make sense to reduce your liabilities in this way.

So what’s behind the figures?

Let’s look at January. The number of loans granted fell more than 6% year on year to around 30,000. In context, the lowest level since July last year. You may remember the Government’s launch of the Funding for Lending scheme last year. Well it appears to have had little impact. Perhaps then it’s no wonder the Chancellor announced further measures in his Budget last week aimed to help the ailing housing market.  The new plan is to offer interest free loans and guarantees to support £130bn of new mortgages from 2014.

Commentators remain bullish about the London property market where growth of 20% over the next 5 years is anticipated even in some non prime boroughs. Of course it can be assumed many of these purchases underlying this growth are made without the assistance of mortgages. For the rest of the UK, the outlook won’t be so positive if lending remains constrained.  And that filters straight into the economy. We can only hope this is only a temporary blimp but there’s nothing to indicate mortgage lending will increase this year.