London, England -- (SBWire) -- 02/25/2011 -- The government’s spending review, along with sliding house prices, has dampened demand for mortgages to its lowest level since the third quarter of 2008 – which was the lowest rating on record.

The Bank of England’s analysis of credit conditions for households and businesses placed demand for home loans at -41.5 on a scale of -100 to +100.

But while demand is down, the banks insist that they are prepared to lend, and do not need to be forced to do so, as the government is threatening.

Simon Hayes, economist at Barclays Capital, said that lending conditions may have reached ‘the new normal’ after the easily available credit that characterised the markets before the 2007 financial crisis. “There are no signs in this survey of further structural tightening in credit supply by lenders: lending flows are weak because uncertainty about the economic outlook is dampening both demand and supply,” Hayes added.

If this is the ‘new normal’, then it may presage an era where house prices have less volatility than in the past 20 years, since there will be fewer speculators hoping to make quick profits and more steady conditions all over.

Reports that lenders are becoming less able to offload risky loans onto other investors are also potentially positive news, since it means that the financial markets are beginning to regulate themselves and steer away from the pyramid selling practices which did so much harm in the mid-2000s.

Indeed, much of the housing bubble has been a form of pyramid selling operation, where vendors would hope to cash out before the crash, leaving the rest of us poor suckers left holding assets worth less than we’d paid for them. It hasn’t quite worked like that, because the market has subsided gently rather than crashed, but the thought was there.

Original comment can be found at The Mortgage Advisory