Housing shows signs of cooling as first-time buyers stay at home

Homebuyers have deserted the housing market, according to a raft of new figures published yesterday that add to evidence of a pronounced slowdown in property prices.

Homebuyers have deserted the housing market, according to a raft of new figures published yesterday that add to evidence of a pronounced slowdown in property prices.

The number of first-time buyers in the first five months of this year has tumbled by 35,000, or 23 per cent, compared with the same period last year, Nationwide Building Society said.

Nationwide said this should act as a brake on house prices as a shortage of buyers at the bottom end of the market would force sellers to cut their asking prices.

The picture was confirmed by the British Bankers' Association, a group which represents 80 per cent of lenders, which said applications for new loans in the four months to April were down 22 per cent.

Nationwide said total transactions were down 7 per cent as the number of homeowners moving house has so far remained stable. But it said that with unemployment set to rise and income levels now falling, it expected to see fewer transactions across the market.

Alex Bannister, its chief economist, said: "It is likely that any easing in price growth towards the bottom of the market may ripple upwards and be the mechanism for the more broadly based slowdown we expect this year.

"We will be looking for signs that existing homeowner numbers are following first-time buyer numbers lower."

He said he had slashed his forecast for the number of home sales this year by 10 per cent to 1.40 million from 1.55 million and 2002's 1.60 million.

Nationwide is forecasting house price growth of 10 per cent this year after 2002's 25 per cent surge. The Bank of England said this month it expected price inflation to "come to a halt" by this time next year.

The BBA said the number of mortgages for house purchase in the four months to April have fallen 22 per cent to 262,561 from last year's equivalent of 340,567. David Dooks, its director of statistics, said: "The cooling housing market is confirmed by the first four months of this year seeing fewer loans approved for house purchase."

There was little sign of an immediate slowdown in prices from Nationwide's figures for May, which showed the price of the average home rose 1.3 per cent after the zero per cent rise in April. However, the annual rate slowed to 21.3 from April's 22.2 per cent rise and Nationwide said the huge rises seen last summer meant the annual rate would continue to decline.

The month-on-month jump added to evidence that there was a "Baghdad bounce" in the consumer economy in the wake of the Iraqi conflict. This was supported by the BBA's figures showing a massive increase in remortgaging and equity withdrawal.

There was a 61 per cent annual rise in the volume of remortgages - where homeowners seek to cut their housing costs by swapping to a cheaper rate - to an all-time record of £8bn in April. The amount of equity withdrawal - where households cash in on the rising value of their homes via a second mortgage - rose 28 per cent to £1.65bn.

This means homeowners - who make up 70 per cent of society - are extracting an average of £55m a day from their value of their homes.

If this were pumped straight into the high street it would add more than 9 per cent to the £17bn Britons spend every month in shops. Economists said the volume of borrowing. combined with the continued strength of the housing market in May, would be enough to prevent an interest rate cut by the Bank of England next week.

"These data cast a major doubt over the Bank's assertion that the housing market is slowing quickly and supports our view that the underlying picture remains robust," said John Butler, the UK economist at HSBC. "This provides further support to our view that rates will remain unchanged at next week's meeting."