Property market cools as mortgage lending falls to lowest level for three months

The number of people arranging loans to move house or buy their first home was the lowest for three months in July and one per cent down on the same period last year.

The figures released by the British Bankers' Association (BBA) fuelled speculation that the 12-year property boom has finally reached its peak and that recent interest rate rises have had their desired affect and cooled the market.

The level of credit card debt also dropped by £82million suggesting families are tightening their belts.

A total of 66,965 loans were approved for house purchase last month, compared to 67,641 in July last year. The average amount agreed was £156,900, 13 per cent higher than a year earlier.

Overall lending figures are being held up by a sharp rise in remortgaging by homeowners shopping around for a better deal or those whose fixed-rate arrangements have come to an end.

The number of remortgages was up 12 per cent year-on-year to 68,814.

In addition, 47,175 loans were approved to release equity on homes, bringing the total of approved mortgages in July to 182,950 - collectively worth £21.5 billion and six per cent lower than June.

David Dooks, of the BBA, said demand was much weaker than a year ago.

He said: 'There has not been a significant downturn yet but at the same time demand is no longer rapidly increasing as it was this time last year.

'It is impossible to say from these figures alone whether their is likely to be more interest rate rises. It is still hanging in the balance.

'But it suggests the market is at least stabilising.'

Oliver Gilmartin, senior economist at the Royal Institution of Chartered Surveyors, said banks and building societies had tightened their lending conditions, denying mortgages to customers they consider a risk, in response to the collapse of the 'sub-prime' mortgage market in the U.S.

He added: 'This could intensify the current slowdown in lending activity over the next six months.

'Equally, those trying to get a foothold on the property ladder may need to stump up higher deposits to allay the fears of lenders.'

The slowdown in home loan approvals follows other signals the housing market may be coming off the boil.

Property website Hometrack said last week that the market had seen the worst monthly performance since November 2005 with London the only region to record a rise in home values.

Three regions saw average house prices fall during August: Yorkshire and Humberside, the North and the South West. And the capital's rise was only slight, at 0.1 per cent.

All the other regions were stagnant, meaning the typical price of a home in England and Wales has remained at £176,300.

The Royal Institution of Chartered Surveyors said the number of people looking to buy a new home fell at its fastest pace for three years during July.

Last week, major lenders including the Halifax, Nationwide, Britannia and the Royal Bank of Scotland moved to cut the cost of fixed rate deals, boosting homeowners' hopes that interest rates could have finally peaked.

There have been five base rate rises in the last year to 5.75 per cent.

But weaker inflation figures have now overturned predictions that base rates could rise yet again to six per cent, fuelling predictions that they have peaked.

Estate agents say that interest rate rises have finally started to drive buyers out of the market and have forced sellers to cut their asking prices.

There were also signs yesterday of a slowdown in the rate at which consumers are taking on unsecured debt.

The BBA said £7.66billion was spent on credit cards last month. After repayments are taken into account, outstanding credit card debt fell by £82million.