The Bank of England today provided further signs that the property market's recent "mini revival" has cooled as it reported a fall in the number of new mortgages approved for house purchases last month.

A total of 115,000 new loans were approved for people buying property in February, down from 121,000 in January. The decline was the first reported by the Bank since November 2004.

The Bank of England figures also showed a fall in mortgage lending in February, with total advances dropping to £27.4 billion, down from £27.7 billion in January. Net lending, which strips out redemptions and repayments, was also lower, at £8 billion, compared with 8.9 billion.

The figures supported a report from the British Bankers’ Association earlier this week that also suggested a dip in activity last month for the firrst time since the end of 2004.

The Bank added that consumer credit remained relatively subdued last month. Unsecured borrowing rose by £1.42 billion, only slightly ahead of January’s total, as a slowdown in credit-card borrowing was offset by increased lending through loans and overdrafts.

The figures showed that outstanding lending to individuals stood at £1,200 billion at the end of February.

The recent recovery in house prices has worried members of the Bank’s Monetary Policy Committee, who fear that a cut in interest rates that would support struggling retailers and manufacturers would also restart an unsustainable property boom.

Today's report on lending levels came as separate data showed retail sales had failed to improve in line with business expectations in March, as cold weather added to "continue tough trading" conditions on the high street.

The CBI’s distributive trades survey said the monthly sales balance improved to -16 in March from -18 in February, well below retailers’ own forecasts for an improvement to -5. Analysts had predicted that the balance would rise to -13.

John Longworth, the chairman of the CBI’s DTS Panel and executive director of Asda, said: "Retailers continue to face the same tough conditions - subdued sales allied with rising costs. Companies’ profits remain hemmed in on all sides by rising rent, rates and energy costs, as well as environmental taxes and the minimum wage."

He added: "There is still room for a quarter point cut in interest rates over the next few months to help stimulate consumer demand."

However, economists said today's data did not alter expectations that the Bank is set to hold interest rates at 4.5 per cent in the medium term.

"None of this will ease concerns for those at the Bank of England nervous about the outlook for consumption in the months ahead, particularly after the loss of momentum early this year," Daragh Maher, a market strategist at Calyon, the investment bank, said.

Property's "mini revival" to end?

On the housing market, the BBA said earlier this week that mortgage approvals levels showed a 28 per cent jump in new mortgages, compared with the previous month.

However, after seasonal factors were stripped out, Capital Economics said it appeared that new approvals actually fell 5 per cent in February and had fallen 11 per cent since November.

Philip Shaw, the Investec economist, said: "The figures indicate that the mini revival in the housing market may be coming to an end."

He added that the number of mortgage approvals and housing transactions had risen sharply during the past 12 to 15 months and could not continue to rise at the same rate.

The Royal Institution of Chartered Surveyors today noted that although mortgage approvals were down in February they were still 33.7 per cent higher than during the same month the previous year and 51.3 per cent above the low point reached in November 2004.

It said that this month's fall ended a 14-month run of rising mortgage approval levels, and further declines were likely in the coming months as the impetus from August’s interest rate cut disappeared and the pent-up demand built up during the period of weakness in the market was exhausted.

However, the downbeat predictions come even as the gloomiest of the house-price surveys this week reported the fastest rise in house prices for nearly two years.

Hometrack, the property website, said that prices rose by an average 0.5 per cent in March, the highest rate since the summer of 2004.

Richard Donnell, Hometrack’s director of research, said: “A resurgent market in London, where prices grew by 1.1 per cent, has put something of a gloss on the headline results.”

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