New mortgages continue to drop

The number of mortgages approved for buying a house fell for the third month in a row during August, according to the British Bankers Association, providing further evidence the property market has turned.

The BBA said that only 64,000 new loans were approved for people buying homes during the month, the lowest figure since January this year, and 22% below August 2003's level.

At the same time, the average value of a mortgage taken out by someone moving home was down for the second month running at ?112,100, compared with a high of ?116,500 reached in June.

There were also drops in the number of loans approved for people who were remortgaging, with the level 6% lower than during August the previous year, while equity release loans fell by 17%.

The Bank of England has increased interest rates five times since November last year, and today's figures are the most recent in a chain of reports from across the property industry that suggests increases have had an impact on would-be home buyers.

Last week, a report from the property website Hometrack showed a fall in house prices in all but three counties in England and Wales, while data from the Council of Mortgage Lenders showed a marked decline in the number of people taking out home loans. Meanwhile, the Nationwide Building Society said house price growth stalled at just 0.1% during the month and Halifax reported a 0.6% fall in prices.

The Monetary Policy Committee has yet to rule out further rises in the base rate, but some analysts believe we have seen the last of the increases. Howard Archer, economist at investment firm Global Insight, said: "Given that recent data and survey evidence has increased the Monetary Policy Committee's concern that the housing market could suffer an abrupt correction, the BBA mortgage lending and approvals data add to the case for no more interest rate hikes this year."

The BBA also reported a slowdown in total mortgage lending during August, with the major banks advancing ?16.61bn during the month, nearly ?1.5bn less than during July.

Net lending, which strips out redemptions and repayments, fell to its lowest level since June 2002 at ?4.4bn, well down on the recent six month average of ?5.56bn.

David Dooks, BBA director of statistics, said: "The slowing down of net mortgage lending in August looks set to continue in the next couple of months.

"A further weakening in the number of loans approved - particularly for house purchase and equity withdrawal - in August indicates that households' appetite for secured borrowing is moderating."

However, while mortgage lending slowed, the BBA said consumer credit picked up during the month. People borrowed a total of ?8.07bn on credit cards in August and, after repayments were taken into account, outstanding debt rose by ?582m, the biggest increase since April this year.

Consumers now owe a total of ?33.14bn on their plastic.

Lending through loans and overdrafts was also buoyant with a total of ?3.44bn advanced during the month.

After repayments were taken into account outstanding debt through loans and overdrafts rose by ?611m, well up on the six month average of ?513m, although it followed a particularly weak July when debt increased by only ?229m.