The Building Societies Association (BSA) said today that its mortgage approvals for last month fell by more than a third compared with the same period a year ago.

These figures add to the growing evidence that interest rates are beginning to impact the housing market.

The BSA said that £4 billion-worth of new home loans were rubber stamped by its members in July, 37 per cent down from £5.5 billion a year ago.

It added that gross mortgage lending dropped by nearly 9 per cent over the year.

Adrian Coles, BSA director general, said: “This is a tale of the five interest rate rises in the last year feeding through to the market."

The figures came as the Council of Mortgage Lending revealed that total mortgage lending hit £34.4 billion in July, a record for the month.

But it admitted that this figure, up 13 per cent on a year ago, was down to a vast number of homeowners remortgaging.

The CML said: “Mortgage lending remains robust despite the five interest rate rises since last August, although we have yet to see the full impact of higher rates.

“As we move into the autumn, the cumulative effects of these rate rises will become more pronounced.”

Nationwide and Halifax have both repeatedly warned that while house price inflation remains robust, the rate of growth is slowing as interest rate rises begin to bite.

A survey by Rightmove, the property website, today said asking prices for properties in London have fallen for the first time in a year, bringing hope that softer conditions in the capital could ease affordability pressures across the country.

It said asking prices dropped 0.1 per cent in the past month, after regular rises of around 2 per cent, suggesting that sellers are adopting more realistic pricing expectations.

Across England and Wales, prices were up by a modest 0.6 per cent in August, compared with 0.3 per cent in July. That took the annual rate up to 12.8 per cent from 10.3 per cent last month.

Despite the rise, Rightmove said that the trend was consistent with house prices increasing more in line with wage inflation for the foreseeable future.

Miles Shipside, commercial director of Rightmove, said that the weaker figures for London were an early indicator of the market's direction. “This fall is the first we have seen for some time and is an early warning signal that even the buoyant London economy is susceptible to market forces,” he said. “The capital and international status of London means that prices are likely to be more resilient in the longer term, unless the current turmoil in the financial market undermines employment and wealth creation.”

Although City bonuses, a key factor at the top end of the market, may be well down at the end of this year and in early 2008, it is too early for them to be having much impact.