Property price fears as mortgage lending falls

The number of mortgage approvals fell last month by almost a quarter compared with a year ago, reviving fears that the housing market may suffer a sharp fall rather than the expected gradual downturn.

The British Bankers' Association said mortgage approvals rose to 67,702 in May from 67,290 in April, but were down 24% from 89,289 in May last year. In terms of value, mortgage lending was down 17% compared with last year.

Director of statistics David Dooks said: "While mortgage lending was slightly stronger in May, it is noticeable that all measures were below comparable data a year earlier, when May was a relatively weak month."

The number of mortgage approvals is considered to be a good guide to the direction of house prices, and economists said the data pointed to a protracted slowdown in the once-booming property market.

Howard Archer, chief UK economist at Global Insight, said: "We maintain our belief that the housing market is more likely to see an extended period of relatively subdued activity and soft prices rather than undergo a sharp correction. "However, much will clearly depend on how well the economy and employment holds up over the coming months, and we acknowledge that a sharp correction certainly cannot be ruled out."

Over recent months, there have been a number of signs that consumer spending has slowed considerably. Not only has the housing market faltered, but high-street retailers and car sales have also suffered.

The British Bankers' Association said credit card lending was also weaker than average over the previous six months, "reflecting the subdued retail sales environment".

Some economists think that the Bank of England's monetary policy committee may now cut the cost of borrowing at some point over the summer. At the last meeting of the MPC, two of the nine-strong team voted to cut rates.

A separate survey showed that house prices in England and Wales fell by more than 3% over the past year. The national average house price now stands at £161,600 from its peak of £167,700 in June last year. This measure fell by 0.2% in June compared with the month before. "House prices have now been falling for 12 months and show little sign of imminent recovery," said the Hometrack survey.

Data from the office of the deputy prime minister showed the number of court mortgage possession actions were 30.1% higher in the three months to April compared with the previous three months and 44% higher than the same period a year ago.

Separately, Britain's biggest housebuilder, Persimmon, said the value of the average price of the homes it had sold over the past six months had risen by 7.6% compared with the same period in the previous year, to £184,000. The rise reflected a change of mix and specification as well as some price growth.

"While the market in some areas of the UK has slowed, there continues to be good demand in other areas, such as Scotland and the south west of England," the company said.