Tough new lending rules act as a brake on mortgage approvals
The number of mortgage approvals made to home buyers has dropped for a fourth month in a row and is now at the lowest level since June last year.
Some 61,707 mortgages worth £10bn got the go-ahead in May, 19% below January's peak of nearly 76,000, amid signs that the launch of stricter lending rules may be having an impact on the market.
Under the Mortgage Market Review (MMR), lenders have to spend more time questioning anyone looking to buy a home or remortgage about their personal spending habits, to assess whether they can afford their mortgage.
Lenders will also have to make sure an applicant could still cope with repayments when interest rates eventually rise.
House prices have jumped 10% across the UK in the last year but last week the Bank of England took out insurance against an overheating market with plans for a cap on home loans and stronger checks on affordability.
The figures from the Bank showed that net mortgage lending rose to a six-year high of £2bn in May from £1.8bn in April, although this is thought to reflect the earlier pick-up in mortgage approvals and higher house prices.
Ed Stansfield, chief property economist at Capital Economics, believes that the the recent weakness in mortgage approvals will not last much longer and that lending will pick up steadily over the rest of the year.
He added: "Although the growth in new buyer inquiries has cooled notably since the turn of the year, perhaps reflecting growing uncertainty about when and how quickly interest rates will increase, demand is still rising.
"Moreover, consumer confidence is buoyant, employment growth is strong and the squeeze on households' real incomes has eased, all of which will underpin mortgage demand."
Yesterday's figures also showed that unsecured consumer lending rose by £700m in May, in line with the average over the past six months. Net borrowing on credit cards rose by £200m, having seen its biggest rise in three years during the previous month.
It also emerged that net lending to non-financial companies jumped by £3.4bn in May, the first increase since last September.
Net lending to small and medium-sized firms still fell by £152m, although this was better than declines of £629m in April and £1.1bn in March.