Rising prices stall homebuyers :: First Mortgage Trust©

The first drop for almost 18 months in the number of mortgages being approved has added weight to claims the recent property market revival could be set to stumble.

Official lending figures released today by the Bank of England showed that mortgages approved for house purchases fell from 121,000 to 115,000 from January to February.

A shortage of homes for sale since the turn of the year has led to house prices firming, but the Bank of England's mortgage figures have supported experts' warnings that marked rises will scare buyers away.

A mini-boom in the London property market has led the way for rising house prices, with the most recent Office of the Deputy Prime Minister figures showing annual growth jumping to 4.3%.

But with sellers holding out for higher prices and first-time buyers being squeezed by rising costs, analysts predict the return of a full-scale property boom cannot be sustained.

The Bank of England's data showed falling homeloans led to the annual increase in the value of mortgage lending slowing by £800m to £8.1bn in February, but the 12-month annual growth rate remained stable at 10.6%.

Howard Archer, chief UK economist at Global Insight said: 'The Bank of England data indicate a modest loss of momentum in housing market activity in February, with mortgage approvals softening to 115,000 from a year-and-a-half high of 121,000 in both January and December.

'Perhaps significantly, February marked the first drop in mortgage approvals since November 2004. Although the mortgage data are still robust, the softer data for February could be an early sign that the recent firming in house prices is starting to have a dampening effect on market activity.

'This reinforces our suspicion that house prices will be unable to sustain sharp gains for an extended period.'

Loans secured on homes for purchase other purchases fell by 5,000 from January to February, while remortages rose by 3,000.

The annual growth rate of unsecured lending on credit cards and loans continued to fall, but February's figures still showed an 8.7% increase on a year ago. Credit card lending increased by £500m in February and loans and advances rose by £900m, compared to rises of £500m and £600m in respectively in the previous month.