Economists warned today that the housing market was facing a fresh round of price falls as mortgage lending remained subdued.
Figures from the Bank of England showed that only 48,722 mortgages were approved for house purchase during July.
Although the number was slightly up on the previous month, it remains well down on the monthly level of 70,000 to 80,000 approvals for house purchase that are consistent with a stable market.
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: "This morning's figures provide further confirmation that the housing market is heading for a double dip, with net mortgage lending pretty much flat and the number of mortgage approvals remaining very low.
"The figures for mortgage approvals, a proxy for activity, tend to be well correlated with prices and the latest figures clearly point to falling prices over the second half of this year and into 2011, particularly now that supply shortages have eased."
Today's figures are the latest in a raft of gloomy data on the housing market, which has failed to benefit from its traditional summer bounce.
Nationwide reported a 0.5% house price fall during July, while Halifax has reported falls for four of the first seven months of the year.
The main problem for the housing market is that the key factor that supported house prices during 2009, namely a shortage of supply, has now been reversed.
The house price rises seen during 2009, combined with the abolition of home information packs, has tempted more homeowners to put their properties up for sale.
But the rise in the supply of homes has not been matched by a rise in demand, despite initiatives such as the stamp duty holiday for first-time buyers purchasing properties worth up to £250,000 and record low interest rates.
Instead a lack of mortgage finance is continuing to limit the number of people who can buy a home.
Although the number of loans available has increased since the beginning of the year, lenders are continuing to demand deposits of at least 25% to get their best deals.
Many buyers are also adopting a "wait and see" approach amid concerns that the economy could be heading for a double dip recession and worries about job security ahead of this autumn's comprehensive spending review.
At the same time, the economic fundamentals remain unfavourable to the housing market, with unemployment high and wage growth slow.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "A lack of mortgage finance remains a key problem for many borrowers looking to take their first step on the property ladder, with the high deposits required still proving to be an obstacle for many.
"Uncertainty over the outlook for the market may also be discouraging would-be buyers."
Howard Archer, chief UK and European economist at IHS Global Insight, expects house prices to fall by around 3% during the second half of this year, followed by a drop of around 5% in 2011.
Paul Diggle, property economist at Capital Economics, is more pessimistic.
He thinks house prices will end 2010 5% lower than they started the year, with further falls of 10% in both 2011 and 2012 pencilled in.
The group believes falls of this level are needed to take the house price to earnings ratio, a key measure of affordability, back to a sustainable level of 3.7.
But Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, thinks house prices will fall by only 3% to 5% during the coming 12 months, before the market stabilises in the middle of next year.
He said the shortage of properties in the UK would begin to exert upward pressure on house prices by the middle of next year, although he warned that any recovery was likely to be slow.Reuse content