May mortgage approvals plummet

Approvals for new home loans plummeted in May to a record low, official data showed yesterday, in a sign that house prices will fall sharply in the coming months.

The Bank of England said mortgage approvals fell 28 per cent on the month to 42,000. Analysts had predicted a reading of 51,000.

"Terrible. There is no other way of describing them," said Philip Shaw, chief economist at Investec. "It is really symptomatic of what is going on the housing market. The real danger is there is a knock-on effect to consumer activity."

Approvals were 64 per cent lower than a year ago in May as mortgage lenders have tightened up borrowing terms in the face of funding constraints caused by a global credit crunch.

House prices have already been falling at monthly rates not seen since the housing market crash of the early 1990s and the very weak approvals numbers suggest the downturn is only just beginning, especially as interest rate cuts are not likely.

The Bank is juggling the twin risks of a sharply slowing economy and the highest inflation rate since it was given control of monetary policy in 1997, and the Monetary Policy Committee is expected to hold rates steady as a result.