UK mortgage approvals collapse 56%

Another record broken. This time its the biggest annual decline in mortgage approvals since the British Bankers Association records began 11 years ago.

Approvals dropped to just under 28,000 in May - a 20 per cent fall in the past month, and a 56.1 per cent fall since May last year. With record numbers of properties for sale confidendce in the UK property market has crumbled.

Michael Saunders, chief UK economist at Citigroup, said: "These figures highlight again the extreme weakness of the housing market, caught between over-inflated values, high household debts, erosion of real incomes via high inflation, and the credit crunch. "Our base case – base case, not worst case - is for house prices to fall 20 per cent. It may turn out even worse than that."

Howard Archer of Global Insight said: "The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions. We forecast house prices falling 24 per cent in nominal terms from their August 2007 peak of £199,600 to stand at £152,683 at the end of 2009."

Mr Archer said: "[This is] more very worrying news that heighten concern that we are in for an extended, deep correction in the housing market.

"The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions.

"Obviously the more that house prices fall, the more people will be trapped with negative equity, although it must be borne in mind that average house prices rose by 190 per cent over the decade to August 2007 on the Halifax measure. Nevertheless, those people who took out 100 per cent or even 100 per cent-plus mortgages within the last two years are particularly vulnerable to falling into the negative equity trap."

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