Building societies have so dramatically slashed their mortgage lending that repayments outstripped new loans by almost £700m in June, according to the latest data from the Building Societies Association.

The June data follow a more modest net outflow of £110m in May on a seasonally adjusted basis and offer a bird’s eye view of the credit crunch caused by a drought of available cash.

According to data from the Bank of England, the net withdrawal of mortgage lending by building societies is unprecedented; not even in the darkest days of the last property recession did net lending become negative.

Adrian Coles, director-general of the BSA, said the net withdrawal of capital reflected extreme conservatism on the part of societies. 'They are keen to make sure they are only lending to those who are able to repay their mortgage,' he said.

But the spectre of Northern Rock has hung over the sector and there is a sense among lenders that they would rather bolster their own cash reserves than make new home loans.

'Of the money coming in from retail savers, more of that is going into liquidity rather than into new mortgages,' Coles said. He said that the Financial Services Authority, which regulates the sector, is placing informal pressure on societies to increase reserves above 20% of liabilities, which historically has been the long-term average ratio in the sector.

Financial Times