Fresh signs that higher interest rates are putting the brakes on the housing market emerged yesterday from a report showing mortgage approvals plummeted last month.
Some 45,533 new home loans were rubber-stamped by high-street banks in December, down 11 per cent on a year earlier, according to the British Bankers' Association. December is always a quiet month for approvals, but the size of the year-on-year drop took analysts by surprise.
"The data reinforce our long-held suspicion that the growing affordability pressures resulting from higher interest rates, relatively moderate real earnings growth and elevated house prices will increasingly feed through to squeeze buyers out of the market and curb house price rises," said Howard Archer, an econ-omist at Global Insight.
David Dooks, the BBA's director of statistics, played down the fall in approvals - regarded as a reliable indicator of the health of the housing market - pointing out that a broader look at the last quarter of 2006 showed the market remained strong.
Nevertheless, the figures follow a report from the Royal Institution of Chartered Surveyors that showed a sharp drop in house price growth in December, and add to the feeling that the long-running housing boom is running out of steam.
This month, the Bank of England's Monetary Policy Committee lifted interest rates by a quarter-point to 5.25%, the third such move since last August. The cumulative effect has been to add about £48 to the monthly bill for a £100,000 repayment mortgage.
Kelvin Davidson, property economist at Capital Economics, said: "We believe that the soft tone of the approvals data will become more commonplace in other activity indicators in coming months, with house price pressures likely to have weakened considerably by the end of the year."
Meanwhile, credit card borrowing fell for the seventh time in eight months in December, indicating that debt-laden consumers are cutting their use of credit.
"The annual growth in consumer credit, at only 2 per cent, is low by historical comparison and, although strong Christmas sales have been reported, our December figures suggest that spending was not fuelled by more borrowing on credit cards," said Mr Dooks.Reuse content