Home loans by banks slump to a record low

Just 44,100 mortgages were approved last month - down from September's 54,000, the British Bankers' Association revealed yesterday.

It was the third consecutive monthly drop and a fall of 37 per cent compared with October last year, when 70,000 home loans went through. The figure of 44,100 is the lowest since the association started compiling data in 1997.

Experts said it shows the housing market is 'cooling significantly' and called on the Bank of England to cut interest rates.

The association also warned it is expecting November and December's figures to be even lower.

It blamed evaporating consumer confidence, tighter credit conditions and increasing pressure on household finances for the slowdown.

The introduction of the Government's controversial home information packs has also hit the number of sales going through estate agents, it added.

David Dooks, the association's director of statistics, said: "October's data provides evidence of a rapidly slowing mortgage market and of consumers limiting their personal borrowing.

"Pressure on household finances, the cumulative impact of interest rate rises over the past year, the expanded application of home information packs and the impact of the credit crunch may well all have a part to play in suppressing current demand and supply."

Property-economists at Capital Economics who are predicting price falls in many regions next year, described the data as "dramatic".

It prompted calls for the Bank of England to cut the base rate to head off the risk of a disastrous slowdown in economic growth and increases in unemployment.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "These figures highlight the emerging pressures on the housing market.

"Activity is clearly beginning to slow, as reflected both in the drop in new buyer enquiries and the decline in mortgage approvals.

"We expect turnover to continue to soften in the near term, although a lack of forced sellers of property should prevent this feeding through into lower prices.

"The accumulating evidence of a more troubled housing market is likely to strengthen the case for an early response from the Bank of England."

The credit crunch followed the collapse of thousands of risky sub-prime mortgages in the U.S., leaving the banks with multi-billion-dollar losses and unwilling to lend to each other.

In Britain, banks have responded by tightening their lending rules and putting up interest rates on some financial products.

2More applicants are being rejected for mortgages, credit cards and personal loans.

Mr Rubinsohn said: "First-time buyers are being particularly badly affected by the reining in of lending activity by mortgage providers making it even harder for them to secure a foothold on the property ladder."

The bankers' association figures also show that the number of home mortgages reached a high of 92,053 in February 2003, when the market was caught up in the heart of a buying and price rise boom.

The big High Street banks represent around two-thirds of all mortgage approvals, while the remaining loans are mostly given out by building societies.

Howard Archer, chief UK and European economist at Global Insight, said: "Overall evidence increasingly indicates the housing market is cooling significantly in the face of tighter lending practices and the heightened affordability pressure on house buyers coming from higher interest rates, elevated house prices and muted real disposable income growth.

"These factors are expected to increasingly bite over the coming months."