Mortgage approvals hit two-year low as house prices fall for the first time since 2005

Just 102,000 loans for purchase were agreed, which is the lowest figure for more than two years.

The property market is suffering a double whammy caused by five increases in the Bank of England base rate in a year and the impact of the global credit crunch.

The Council of Mortgage Lenders believe the property market is facing its most serious turmoil in a decade.

Many potential buyers simply cannot afford to enter the market because repayments are too high.

Separately, banks and building societies have tightened their lending rules, rejecting some people or restricting the amount they will lend.

Estate agents have recently reported that property prices are falling in many areas, while repossessions are rising sharply.

The most positive analysts suggest the market will stagnate for at least a year, others, including the International Monetary Fund, warn of heavy price falls.

The home loan figures, which were published by the Bank of England, were released alongside others identifying a surge in personal borrowing.

Thousands of people appear to be consolidating debts by taking out new loans against their homes, others have increased their borrowing on credit cards and bank loans.

These increases suggest more people are resorting to borrowing in order to make ends meet. A recent survey by Shelter claimed that as many as one million people had used a credit card to pay make a mortgage or rent payment in the past year.

The total value of new loans secured on property, including those for house purchase and remortgaging was £31.21 billion in September.

Once redemptions and repayments were stripped out, net lending rose by £9.8 billion, which is the highest increase since February.

Unsecured borrowing through credit cards, overdrafts and loans increased by £1.35 billion, which is the highest increase since January 2006.

Credit card lending, which has been particularly subdued this year with consumers paying back more than they borrowed during two months, rose by £310million. That is the highest figure since February 2006.

Lending through overdrafts and loans was up by £1.04 billion, the biggest monthly jump since May.

Property economists at Capital Economics are predicting a fall of 3per cent in prices in both 2008 and 2009.

A spokesman said: "Today's data from the Bank of England showed that higher interest rates are certainly having an effect on mortgage demand.

"Mortgage approvals in September fell to their lowest level in over two years. And with the tightening in lending criteria over the past couple of months likely to affect the cost and availability of mortgage finance, we expect this downward trend to continue into 2008."

Higher interest rates have pushed thousands of home buyers to the brink of financial ruin. One analyst believes repossessions will more than double to over 40,000 this year, rising to 70,000 next year.

Economist Alan Clarke, of BNP Paribas, said: "The market is slowing. We think there will be plenty more downside in the coming months which will lead to a sharp fall in house price inflation further down the road."

The Council of Mortgage Lenders expects national house price growth of 1per cent in 2008. That would be below the general rate of inflation, representing a fall in real terms.

Its director general, Michael Coogan, said: "The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago."

The Centre for Economics and Business Research(CEBR) is predicting price falls at the end of this year and through into 2008. However, it believes a property shortage, fuelled by a rising population, will see increases in 2009 and 2010.

CEBR economist, Laurent Souron, said: "The market will inevitably be knocked sideways by the credit crunch, and we forecast that it will bring to an end to 29 consecutive quarters of house price growth. However, the market will soon shrug off these slight woes."

Managing economist at CEBR, John Ward, added: "You can't get away from the fundamental imbalance between demand and supply that exists in this market.

"This imbalance will only be exacerbated if the government's new, higher forecast of UKpopulation proves to be correct. Given this, we expect the impact of the credit crunch on the market will only be temporary."

The CEBR predicts the average house price will fall from an average of £198,900 in the summer to £195,000 in early 2008. However, it believes the figure will recover, climbing to £219,700 by early 2010.