Rate rises scare off house buyers

Fresh evidence of a downturn in the property market emerges today with Britain's estate agents saying higher interest rates from the Bank of England have triggered falling prices and weaker activity.

The Royal Institution of Chartered Surveyors says potential buyers are being scared out of the market by dearer borrowing and fears of a full-blown crash, with the market slowing in all parts of the country.

Although the RICS believes the stable economy and low unemployment rule out a re-run of the housing recession of the early 1990s, it said buyer inquiries in August were down for the fourth month in a row.

The snapshot of the market from estate agents tallied with figures for new mortgages released yesterday, which pointed to a marked slowdown in demand for home loans over the summer.

Data from the Council of Mortgage Lenders showed that the number of loans for house purchase fell by 20% in August to 104,000, down from 130,000 in July and 116,000 in August last year. August saw the bank raise interest rates for the third time in four months to 4.75% and for the fifth time since it started to tighten monetary policy last November.

The CML said £25bn was advanced during the month, 13% less than July's record £28.9bn. There was a fall both in loans for new house purchases - down 18% on the month - and in remortgaging.

The British Bankers' Association also reported a slowdown in lending, with borrowing through home loans rising by only £4.39bn in August - the lowest figure since June 2002.

George Buckley, economist at Deutsche Bank, said: "The lending data are all pulling in the same direction, and that direction is downwards."

Howard Archer, analyst at Global Insight, said: "Evidence that the housing market is losing momentum is currently coming thick and fast. Markedly weaker mortgage lending and approvals in August, evident in the data today from the British Bankers Association, Building Societies Association and Council of Mortgage Lenders, points to a further softening in house prices, in the near term at least.

"Nevertheless, it is still difficult to be totally confident that the housing market slowdown is more than just a temporary lull in activity, although we suspect that it is."

The snapshot of the housing market from the RICS found that 12% of estate agents - concentrated in Scotland and the north of England - were reporting price increases but that a quarter of those questioned were detecting price falls.

"The market slowed across all regions, with London, the south-east and eastern regions reporting the largest price falls followed by the south-west," the RICS said.

"The strongest price growth by far remained in Scotland and the north but a rapid slowdown was apparent in the north-west and Yorkshire and Humberside. Prices were static in the Midlands and Wales."

It added that, despite the five increases in interest rates, households were not being forced into making sales.

Surveyors had detected a rise in the stock of unsold property, but it was still 12% down on last year's levels. "This shows that selling activity has seen little notable pick up despite speculation over price falls."