The UK mortgage market is expected to reduce by as much as 20 per cent this year as the credit crunch continues to put pressure on lenders, a report has warned.

The report, by market analyst Datamonitor, said the outlook for the UK lending market was bleak, with the ongoing problems caused by the credit crunch leading to fewer lenders operating, a shrinking number of products, higher prices and more consumers being refused credit.

According to the report, lending is predicted to fall by 19.3 per cent during 2008 due to the problems caused by the credit crunch.

Despite this news, the report points to signs that competition is slowly returning to the market, with a number of major lenders cutting their rates several times during the past few weeks.