Mortgage approvals fell sharply in June, lending yet more weight to the theory of a dip in the UK housing market as the Nationwide index showed UK house prices starting to fall in July

Bank of England data show mortgage approvals for house purchases fell by 3.7 per cent to 47,643. The drop, following a very slight fall last month, appears to set UK mortgage approvals back on a declining trend, after several months of increases in the spring.The pattern of ups and downs in approval numbers is similar for remortgages and other types of secured lending. Remortgages fell 2.6 per cent to 24,949 during the month, making three months of straight declines. Other secured lending was largely static, rising slightly in June after two months of falls.

Lower mortgage approvals suggest property-secured lending will fall in the coming months. This month, lending secured on dwellings rose by £0.7bn, keeping the one month growth rate at 0.1 per cent and the 12-month growth rate at 0.9 per cent.

Credit card lending rose by £0.1bn during the month, offset by a fall in unsecured lending. The consumer credit picture overall is best described as static.

Meanwhile, UK house prices started to fall in July, according to the Nationwide house price index, which registered a drop of 0.5 per cent, taking the average house price to £169,347 and the annual rate of house price inflation to 6.6 per cent.

Martin Gahbauer, Nationwide’s chief economist, blamed restrictive credit and worries about the economy for weak buyer demand. “A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources,” he said.

“Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainty over future income and employment prospects.”

An increase in the supply of houses is also driving prices down, Mr Gahbauer believes, ending the severe shortage of properties for sale. The abolition of home information packs (Hips) has encouraged speculative sellers to test the market, and some buy-to-let landlords are trying to sell their properties, shifting the excess supply of properties from the rental market to sales.

“At the moment, the market is clearly easing relative to the very tight supply conditions that characterised it since early 2009,” he said. “However, it will take several more months to establish whether house prices are now simply oscillating around a flat price trend or whether a period of downward trending prices may be in store.”

Nationwide is the latest lender to record a fall. House prices dropped 0.5 per cent in June according to the Halifax, whose index has shown a fall every month since April. Their July figures are due out next Thursday. The conservative Land Registry index, published a month later than the other indices, showed a slight rise in prices of 0.1 per cent in June following a fall of 0.2 per cent in May.