The first cracks in the housing market emerged yesterday as the number of new mortgages fell to its lowest level in a year.

After months of mixed signals on the future of Britain’s property market, data from the Bank of England at last confirmed that activity is slowing.

New mortgage approvals are frequently an early indicator of the path of house prices. Potential house buyers now appear to be taking fright at the rising costs of home ownership, after the Bank of England’s four interest rate rises since August.

The market is expected to take a further hit this summer when the Bank is expected to raise rates again – perhaps as soon as next week. Some City analysts are predicting that rates could hit 6 per cent by August.

Background

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• A guide to the housing market forecasts

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Background

• All set for slowdown

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The London property market

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First-time buyers priced out

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Background

• Property prices grow at slowest rate in five months

• Buying a house 'will cost 10 times your income'

• How the mortgage market has changed

• First proof of decline in housing market

• Buy-to-let brigade could be the joker in pack

No one is suffering as much as first-time buyers

Lenders are getting more picky, yet property prices are refusing to fall far enough, fast enough

Background

• First proof of decline in housing market

• Fresh signs of cooling housing market

• House prices slow despite London surge

Background

• Mortgage slowdown triggers house price fears

• Buy-to-let tax shock

• Fall in mortgages raises fears of slowdown

• Signs emerge that UK housing is off the boil

• Interest rates put brake on house prices

End of house price boom is in sight

Societies saw an 8% drop in mortgage approvals last month compared with a year ago, the first such fall since 2005

Background

• Nationwide says slowdown may limit price rise

• House prices keep on rising

• Your guide to surviving the rate hike

• The return of negative equity?

Housing costs taking their toll

The question that always accompanies fresh data showing a fast-growing housing market is: are we headed for a crash?

The number of new approvals slowed to 107,000 in April, official figures from the Bank showed, down from 112,000 the month before and the lowest such figure since April 2006.

Data from the Nationwide meanwhile added to the picture of a long-awaited slowdown starting to take hold. Prices were up by 0.5 per cent in May, it said, compared with 0.9 per cent the month before. Its measure of the underlying strength of property inflation was the weakest since last August.

However, the picture was clouded by the strength of headline house price inflation, which remains “stubbornly in double-digits” at 10.3 per cent, Nationwide said.

Figures from the Land Registry earlier this week showed that prices are already falling in the North East, the South West, the North West and Yorkshire and Humber. But the continued strength of prices in London, the South East and in Northern Ireland has so far kept the national figures high.

Property inflation over the past decade has put pressure on first-time buyers. According to Nationwide, typical house prices in London are now 6.8 times the average salary of a first-time buyer, compared to 3 times ten years ago.

Meanwhile, the cost of remortgaging has crept up, with people coming to the end of two-year fixed mortgages now typically facing higher costs, in a development which could cause high street spending to slow in the months ahead.

Vincent Cable, the Liberal Democrats’ Treasury spokesman, gave warning yesterday that cooling property prices could be part of a wider crash.

“The concern is that this slowdown could be part of a much messier process in which house prices start to fall sharply as growing numbers of people are caught up in negative equity and arrears problems, as happened in the early 1990s,” he said.

“So far this has not happened, but there is a degree of naive optimism in the lending industry and government that there is bound to be a soft landing.”

Jamie Dannhauser, an economist at Lombard Street Research, said: “The housing market is unlikely to suffer as it did in the early 1990s. Even so, there is likely to be a considerable slowdown in house price growth next year, which will have a substantial influence on consumer spending.”

The Bank of England said last month that higher interest rates were likely to pull down household spending. “Given the rise in household debt, this impact is likely to be larger than in the past,” it said.

As rates rise, consumers have been increasingly wary of taking on more credit card debt. The Bank’s figures showed yesterday that unsecured lending rose in April at its slowest pace since Labour came to power.

George Johns, of Barclays Capital, said: “We think this is a reflection of the fact that consumers have become more wary of unsecured credit and/ or lenders have tightened credit standards. Given that, this weaker profile for consumer credit seems likely to persist for some time.”

The difference a decade makes
£58,196: Average house, May 1997
2.3: Ratio of average price to first-time buyer earnings
53%: Payments as a percentage of first-timer’s take-home pay
£181,584: Average house, May 2007
5.1: Ratio of average price to first-time buyer earnings
121%: Payments as percentage of first-timer’s take-home pay

Source: Nationwide; affordability indices are for first quarter

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