Fall in mortgage approvals leads to house prices warning

The number of approvals for house purchase in June was 44,192, down from a 25-month high of 50,544 in May and falling 10 per cent year on year, the Bank said.

The figures also revealed that repayments on secured loans were ahead of new lending for the first time since June last year, leading to the smallest rise in total lending to individuals – £300m – in nearly two years.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures showed that “underlying housing market activity is limited” following a jump in first-time buyers looking to complete before a stamp duty concession ended in March.

Lenders are expected to continue a trend seen in recent months of tightening their borrowing criteria and raising their mortgage rates amid the weak economy and the ongoing eurozone crisis, making it tougher for people to take out a mortgage.

The number of approvals for re-mortgaging also fell back in June, to 24,117 loans worth £3.3bn, down from 28,567 the previous month.

Mr Archer added that the weak figures reinforced a view that house prices are set to fall in the months ahead.

He said: “We expect house prices to end up losing at least three per cent from current levels. Furthermore, there is a significant danger that prices could fall even more than this due to the serious downside risks to the UK economic outlook, both from domestic factors and from the eurozone crisis.”

Consumer credit, which includes personal loans, overdrafts and credit cards, increased by £635m in June, following a surge of £774m in May.