Mortgage approvals fell by 8% in March compared to the same month a year ago, providing further evidence of a slowdown in the housing market…

In total, mortgage lending rose, year on year, by 5 per cent to £18.6bn in March. However, the average mortgage taken out this year was 12 per cent higher than in March 2006, so the total borrowing figure masked an 8 per cent drop in the number of loans approved to 198,000, reports The Independent.

The average value of a loan for house purchase stood at £150,800 in March, up from £134,300 in the same month last year, reflecting the speed of house price inflation over the past 12 months.

David Dooks, a director of the British Bankers Association (BBA) said that the higher cost of borrowing, following three Bank of England base rate rises in the past nine months, seemed to be acting as a brake on borrowing.

"Weaker demand is starting to emerge," said Mr Dooks. "Strong levels of gross mortgage lending reflect homebuyers and homeowners seeking our fixed-rate mortgages as protection against rising interest rates. However, in the past two months, net lending has risen less sharply and compared to the same time last year, the number of mortgages approved was lower."

Unsecured lending slowing down

The BBA said unsecured lending had also slowed in March, with borrowing on credit cards, personal loans and overdrafts all down sharply compared to a year ago.

New loans and overdraft lending in March totalled just £47m, compared to £117m in the same month a year previously.

The BBA figures are the latest evidence of a slowdown in the housing market. Figures from Hometrack, the property market analyst, published yesterday, showed house prices are now flat in most areas of the country outside London.

Halifax Bank and Nationwide Building Society, the UK's two biggest mortgage lenders, have both made similar observations in recent weeks.

Borrowers ‘forced’ change behaviour

Economists said the figures showed that a total interest rate rise of 0.75 percentage points over the past nine months was finally forcing borrowers to change their behaviour.

Howard Archer, chief UK economist at Global Insight, said:

"The BBA data indicates that housing market activity is now gradually coming off the boil as higher interest rates and elevated house prices increasingly squeeze new buyers out of the market."

Nevertheless, economists and analysts remain convinced that the Bank of England's Monetary Policy Committee will raise base rates by at least a further 0.25 percentage points at its May meeting next week.