Further evidence of a slowing housing market has emerged as the latest figures from the Council of Mortgage Lenders (CML) reveal that the number of people taking out home loans fell in July.

The number of mortgages taken out for house purchases dropped by 8 per cent in July, from 102,000 to 94,000. The summer months are always a quiet time for the housing market, but analysts believe July’s fall in lending is another sign that the recent interest rate rises are beginning to bite,

Michael Coogan at the CML said: “A slight fall in lending between June and July has emerged for the third year in a row, so we cannot read too much into a single month’s figures. But the long-anticipated slowdown in the housing and mortgage markets may now be beginning to materialise.

“Both market conditions and sentiment are coming off the boil, and affordability is ever more stretched.”

Affordability problems are most acute in the first-time buyer market. They are now having to borrow a record 3.39 times their salary in order to raise a large enough mortgage, up from 3.37 times in June and 3.23 times income in July last year. Mortgage interest now accounts for 19.7 per cent of income for the average first time buyer. As a result, the number of people getting onto the housing ladder is falling: 32,400 mortgages were advanced to first time buyers in July, down from 34,700 in June.

The weakening in the housing market is expected to continue. The annual rate of inflation is running at 9.6 per cent according to Nationwide’s latest figures, but the building society expects this to drop back to around 6 per cent by the end of the year.

Fionnuala Earley, chief economist at Nationwide, said: “The expected slowing results from three main factors: weaker affordability as house prices continue to grow more quickly than earnings; the effect of higher interest rates in inflation on consumers’ pockets; and lower house price expectations.

“While it has taken some time for these factors to bite, there are now clearer signs of slower demand in the market reflected in the collapse of first time buyers.”

However, this weakness is throwing up opportunities for investors. Tenant demand is booming as more and more people cannot afford to buy their own home. Consequently, rents are increasing at record rates according to the Royal Institution of Chartered Surveyors (Rics).

Jeremy Leaf at Rics, said: “Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels.”

The average weekly rent is now at an all-time high according to the Association of Rental Letting Agents. Renting a flat in London will typically set you back £525 a week, while tenants in the South East can expect to pay £215 a week. The national weekly average is £150.