The rate of new UK mortgages being granted plunged by 12 per cent during September, adding to growing evidence that the booming housing market is finally running out of steam.

The Council of Mortgage Lenders (CML) said today that the 12 per cent decline in lending, to £30 billion, was above the typical decline expected between August and September when the amount of home loans normally falls by 5 per cent. The figure includes re-mortgaging as well as new home loans.

Although lending in September rose by 2.5 per cent compared to the same month last year, the CML said it was the smallest increase in two years.

The Building Societies Association concurred with the CML's findings, that mortgage lending had fallen, but said the rate had declined year on year, plunging by 10 per cent from £4.8 billion to £4.3 billion.

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The CML said today: "This easing in the market is another sign of the expected consumer response to the five interest rate rises experienced since August 2006."

Michael Coogan, the CML's director general said: "We have been expecting a slowdown in monthly lending levels in line with interest rate rises.

"In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market."

Yesterday, the International Monetary Fund warned that the UK housing market was heading for a crash similar to the current US housing crisis, after it said that British homes were overpriced by as much as 40 per cent.

It also emerged yesterday that the Bank of England's Monetary Policy Committee discussed whether to lower borrowing costs. Speculation is now mounting that the MPC may cut the interest rate in November.

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