Housing woe points to new falls in rates

The Building Societies Association said mortgage lending tumbled last month as softening house prices and higher loan costs put off sellers and buyers. It also reported another jump in savings deposited at building societies as customers continued to withdraw money from Northern Rock.

Customers have now withdrawn about half the £24 billion of deposits held by the bank before it hit trouble.

But the housing figures will trouble the Bank of England most, and the pound fell again today as the City bet this month's interest rate cut will be followed by more in the new year. Sterling last night dropped below $2 for the first time since September, and was today down 0.24 of a cent at $1.9946.

The BSA said its members lent just £4.1 billion in home loans in November, compared with £4.6 billion in the same month last year. Approvals for future house purchases fell from £4.4 billion to £4.2 billion.

BSA director general Adrian Coles said: "This cooling of activity since 2006 is likely to be a consequence of higher bank rates and a tightening of credit conditions more generally."

Rates went up from 4.5% in August last year to 5.75% by July this year, adding hundreds of pounds to the cost of mortgage repayments. The Bank finally cut them to 5.5% this month after it was caught out by the severity of the crisis facing the housing market.

In minutes of its monetary policy committee meeting published yesterday, the Bank admitted: "The slowdown in the housing market seemed more pronounced than expected."

David Brown of Bear Stearns said it looked as if the MPC "hit the panic button for lower rates" as it realised how serious the deterioration was.

Economists now think the Bank will cut rates three times next year to 4.75%, with the first move coming in January or February.

Meanwhile, the BSA said its members received £2.3 billion of savings last month, almost three times the amount in November 2006, on top of the £3 billion they took in October and £2.8 billion in September in the wake of the crisis at Northern Rock.

Coles said: "In the last three months, building societies have received new deposits of roughly the same value as they received in the entire 12 months of 2006."