Loan approvals for home purchases in Britain fell sharply on a year ago in January, the British Bankers' Association has said, providing evidence the housing market could be set to cool in coming months.

The BBA said yesterday approvals - loans agreed but not yet made - fell 43 per cent to 31,285 last month compared with 54,443 a year earlier. That was also lower than 40,201 in December.

Many economists said the figures came in weaker than expected and contrasted strongly with surveys showing house price rises at the start of 2005.

"There had been some sign that there was some sort of pick up in the market in the first few months of this year but that certainly doesn't seem to have come through in today's figures," said Alan Castle at Lehman Brothers.

"It does suggest some of the optimism around the outlook for the housing market may be a little bit misplaced."

The state of the housing market is closely watched by economists as most people own their own homes and where rising prices can result in a buoyant mood among consumers.

The BBA said underlying mortgage lending rose by £4.2 billion last month, a slowdown from £5.2 billion increase in December.

"Mortgage lending resumed its relatively subdued trend in January and this looks set to continue in the near term as approvals of loans for house purchase and equity withdrawal were very weak, even for a January," said BBA director of statistics David Dooks.

Mortgage approvals are widely viewed as a good leading indicator of house prices months out. More closely watched official Bank of England figures on January approvals are due out next Tuesday.

"The fact that there's been such a strong move down in today's figures means it looks like the official numbers will be weak again," said George Buckley, economist at Deutsche Bank.

The Bank's last seasonally adjusted numbers showed a slight monthly pick-up to 83,000 approvals in December but that was from a nine-and-half-year low of 77,000 in the prior month and was still down more than a third on a year ago.