Mortgage lending is at its lowest since 2005

Just 83,000 loans were cleared in November, signalling a 'sharp reverse' in the housing market.

Mortgages agreed by banks and building societies have now fallen for five months in a row and are at their lowest since January 2005.

The figures, published by the Bank of England yesterday, increase the chances of a further cut in interest rates next week.

A shortage of buyers, particularly young adults, is sucking the lifeblood out of the property market and triggering price falls in many areas.

The drop in loans has happened because buyers have simply been forced out of the market by property price rises that have outstripped wages.

Five interest rate rises between August 2006 and December 2007 also pushed up the cost of a mortgage, killing the home- owning dream for thousands.

Separately, banks have decided to put strict controls on their lending in the wake of the global credit crunch.

They are turning away mortgage applicants, reducing the scale of loans available and increasing their charges and profit margins on many loans and credit cards.

City analysts believe only sharp falls in the Bank of England base interest rate will

head off a disastrous property market bust and economic slowdown.

Many are suggesting the current figure of 5.5 per cent could come down to 4 per cent by the end of this year.

Economists at the Centre for Economics and Business Research believe there is a 40 per cent chance of a base rate cut next week.

It said the November figures confirmed a long-term fall in the value of home loans. The figure peaked at £15.5 billion in August, before falling to £14.7billion in September, £12.4billion in October and now £11.4billion in November.

The CEBR said: "The housing market is facing a sharp reverse, though all this will do is take prices back to their levels in 2005 - when they were already quite high. The knockon effect on consumer spending is likely to be tough, with spending growth this year the lowest since the early 1990s."

It said a recession was unlikely, provided the Bank continues to cut interest rates.

Economist Howard Archer, of Global Insight, said: "The weak mortgage data for November provides yet further evidence that housing market activity is now slowing markedly in the face of stretched affordability as well as the tightening lending practices resulting from the credit crunch.

"This ongoing evidence that the housing market is currently slowing markedly maintains pressure for another interest rate cut sooner rather than later."