Experts predict house price slide after mortgage approvals fall at record rate

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The Independent Online

House prices are set to fall over coming months, experts warned yesterday, after official figures showed approvals for new mortgage loans falling at their fastest rate on record.

House prices are set to fall over coming months, experts warned yesterday, after official figures showed approvals for new mortgage loans falling at their fastest rate on record.

The drop, which came as retailers reported their worst trading month for more than a year, will be seen as fresh evidence that rises in interest rates are starting to bite.

The number of mortgage approvals dropped by more than 14 per cent in July to 97,000, the Bank of England said. The fall of 15,000 was the largest since at least 1993.

One analyst said separate figures suggested the last time there was a larger fall was April 1990, as house prices were crashing. "That is a period one hopes not to drawing parallels with," Malcolm Barr, UK economist at JP Morgan, said.

The Bank has raised rates by 1.25 percentage points since November last year - an increase of 35 per cent since they troughed at 3.5 per cent - in order to slow the housing market.

A slew of reports from estate agents has pointed to a marked slowdown in activity. "It is becoming more difficult to describe the slowdown as merely tentative," George Buckley, at Deutsche Bank, said. "House prices might well fall during the coming months."

Nationwide, the UK's largest building society, will today publish the first estimate of rises - or falls - in house prices over August. Analysts said firm signs of a slowdown in the once red-hot consumer economy would prompt the Bank to a call a halt to rate rises. Mr Barr said: "The downdraft we are seeing in mortgage approvals is sufficiently big to make the Bank worry it may have overdone it. If you stopped the clock now it is quite clear they are not going to raise rates given this data flow and the precondition to any rate rise would be a sign that the housing market is not correcting as quickly as the figures suggest."

Capital Economics, a consultancy that is forecasting a 30 per cent price fall, said the Bank might even have to cut rates next year to shelter the economy.

There was evidence of a wider slowdown in consumer activity from the CBI, whose survey of its retail members showed that the high street suffered a poor August. Retail sales grew at their slowest pace in more than a year as higher interest rates and bad weather took their toll, it said.

A positive balance of just 2 per cent of retailers reported a rise in sales compared with a year ago, the weakest out-turn since March last year.

Digby Jones, the director general of the CBI, said: "If the Bank's strategy of gently slowing consumer spending is working, further rate rises could be put on hold." Ross Walker, analyst at Royal Bank of Scotland, said: "The wet weather may have dampened consumer spending [but] the interest rate medicine appears to be working."

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