New home loan approvals nosedived at their sharpest annual pace in at least a decade to hit a record low in May, figures showed on Tuesday, raising fears the housing slowdown is about to escalate into a crash.
The credit crunch has forced banks to toughen up lending terms, making it harder for Britons to get affordable mortgages and house prices have already started to fall at monthly rates not seen since the slump of the early 1990s.
Economists worry that a housing market meltdown will drag the economy into recession at a time when the cost of living is rising fast as food and fuel prices soar on global markets.
The British Bankers' Association said mortgage approvals for house purchase - an indicator of future house prices - fell to 27,968 in May from 34,752 in April. That was 56 percent down on a year ago - the biggest drop since the series began in 1997.
"A very worrying picture of how the credit crunch is unfolding. A U.S.-style housing slump looks increasingly likely," said Michael Hume, an economist at Lehman Brothers investment bank.
"The drop in mortgage approvals and lending points to a housing market that is rapidly grinding to halt under the pressure of higher mortgage interest rates, tighter bank lending standards, and declining confidence."
One Bank of England policymaker - arch dove David Blanchflower - has suggested house prices could fall by about a third unless the central bank acts now.
And signs of worsening conditions will do little to help struggling Prime Minister Gordon Brown who has lost the public's confidence on the economy in the wake of the collapse of credit crunch victim and mortgage lender Northern Rock.
