Mortgage approvals in UK dive to record low in May

Mortgage approvals fell at their sharpest annual pace, in the UK, in at least a decade to hit a record low last month, a survey showed yesterday, raising fears the housing market slowdown could turn into a crash.

The British Bankers' Association said mortgage approvals for house purchase - an indicator of house prices in the future - fell to 27,968 last month from a downwardly revised 34,752 in April.

That translated into a 56.1 per cent drop on the same period a year ago - the biggest such fall since the survey began in September 1997.

The credit crunch has forced banks to toughen up lending terms, making it harder for Britons to get affordable mortgages. House prices have already started to fall at monthly rates not seen since the slump of the early 1990s.

"Measures of mortgage activity were lower last month as a result of tighter lending criteria and economic pressures on households," BBA director of statistics David Dooks said.

Interest rate future contracts for September and December turned positive after the weak data fanned concerns about economic growth. Investors have moved swiftly to bet on higher interest rates in recent weeks after strong inflation data. But policymakers say they expect a weakening economy to help to cool price pressures.

"Clearly a lot of the forward-looking indicators of the housing market are turning down," said Mark Miller, UK economist at HBOS - which is forecasting a nine per cent fall in house prices this year. "It doesn't change the Bank of England debate too much. We are looking for rates to stay on hold next month."

The BBA said mortgage lending rose by £4 billion last month, down from a £5.2 billion rise in April and the weakest rise since October 2007.