Banks dominate mortgage market as credit-crunch bites

A 14% fall in mortgage approvals to 179,000 in May is further confirmation that the market for home loans is shrinking quickly. Just £5.8 billion was advanced to individuals to buy houses last month, compared with £16.9 billion a year ago.

However, the main high street banks have increased their share of the new mortgages despite lending less money. Their market share has grown from 56% in October 2007 to 77% in May. Around two years ago, the new mortgage market was fairer when banks had around half the market.

David Kuo, Head of Personal Finance at money website Fool.co.uk, says: "The increasing dominance of banks in the market for new mortgages is a worry for anyone looking to step onto the housing ladder.

"The once level playing field that borrowers could count on for competitive rates has been tilted in favour of banks. Even worse, banks are offering unattractive deals knowing that customers are faced with little option but to accept them.

"Fool.co.uk urges banks to treat customers fairly at this difficult time. The pendulum of power has swung in their direction, but they need to remember that a pendulum swings both ways. If they exploit their privileged position now, then they need to be ready to duck for cover when the pendulum swings back the other way."