Lenders set to tighten mortgage lending criteria in face of weak economy and eurozone crisis

MORTGAGE approvals have dropped off further from a two-year high seen earlier this year, leading to speculation that house prices are likely to soften in the coming months.

• First-time buyers to face tough borrowing restrictions along with raised mortgage rates

There were 51,098 mortgage approvals for house purchase in May worth £7.6 billion, the lowest figure since March and significantly down on a 25-month high in January, Bank of England figures showed.

At the beginning of this year, lenders and estate agents reported a rush of first-time buyers trying to beat a two-year stamp duty exemption deadline, which ended in March.

There were 58,728 loan approvals for house purchases in January, and lenders have said that the deadline had the effect of bunching up sales which would have otherwise happened later this year.

The number of approvals for re-mortgaging also fell back in May, to 29,244 loans worth £4 billion, the lowest number of loans since February.

Howard Archer, chief UK and European economist at IHS Global Insight said: “Mortgage approvals have hovered around 50,000 since January.

“This indicates that underlying housing market activity remains weak following a limited boost to housing activity in late-2011/early-2012 from first-time buyers looking to complete before the stamp duty concession ended on March 24.

“The ongoing muted mortgage activity reported by the Bank of England maintains our suspicion that house prices are likely to drift lower over the second half of 2012 and are likely to fall by around 3% from current levels.”