Bank mortgage lending has slumped to the lowest in four months and is wrecking hopes of a recovery in the housing market, according to figures released by the British Bankers Association.

Only 26,097 mortgages were given the go-ahead for homebuyers in March – down 7% on February and 25% on March 2008.

The BBA claims lending will fluctuate during the recession – but some major banks have promised lending will increase when statistics from the organisation that acts as their public voice clearly shows otherwise.

All mortgage lending indicators for March were down on February. Final lending figures for the month showed the banks lent £8.9 billion – the lowest since April 2001 and 47% on March 2008.

Remortgages were down to 26,831, just under 5% from February and 58% down year-on-year. The BBA attributes the fall in remortgages to homeowners switching to their lender’s standard variable rate as fixed rate and other discount deals end.

Many of these homeowners would remortgage if they could – but due to tightening of lending criteria, they can’t find another mortgage. The main two problems are:

• Negative or low equity,which means borrowers can’t qualify the best mortgage rates because they need to borrow more than 75% of their property’s value.

• Lenders have increased credit score requirements that mean people with unblemished credit records cannot get enough ticks in the boxes to pass the lender’s underwriting.

Surprisingly, the BBA statistics director claims lending to households continues to grow – but what he really means is that when you add other personal loans, credit cards and overdrafts to mortgage lending, borrowing is up.

The spin does not actually represent the reality of bank mortgage lending.

"Lending to households continues to grow as banks make funds available to for people who meet their lending criteria," he said. "The banks’ figures also show that it would be unrealistic to expect the mortgage market to recover in a steady and consistent way in the current economic environment."

The BBA is the leading UK banking and financial services organisation. Major banks account for about two thirds of all mortgage lending.

Further analysis of the UK economy by the International Monetary Fund does not bode well either.

The IMF says that despite Chancellor Alastair Darling’s optimistic Budget 2009 forecasts, the economy has still not hit rock bottom and the housing market is still in freefall despite property losing about 20% in value over the past year.

The IMF expects the recession to continue in to 2010 and not to pick up later this year, as the Chancellor related in his Budget speech.

Overall, the outlook is bleak for first time buyers and homeowners looking for the best mortgage deal.

If you are looking for a home loan – then a mortgage comparison site like ours is a good place to consider starting your search. In minutes, you can find out what the best mortgage rates are and whether your deposit or equity matches a lender’s requirements.