Fresh evidence of a slowdown in the housing market emerged today, and analysts are warning of worse to come.

The number of mortgages approved for house buying – seen as a good indicator of future price trends - fell in August to 109,000, down from 115,000 the previous month, according to the Bank of England. Mortgage lending was down 5 per cent at £8.5billion from £8.9billion in July.

Separate research by Hometrack, a property website, reported that house prices were unchanged for the second month in row in September. The average house price is now just 5 per cent higher than a year ago, according to Hometrack’s report.

The slowdown has been sparked by a toxic combination of higher interest rates and the credit crunch in the financial markets which has encouraged homebuyers to tighten their belts.

Howard Archer, chief UK economist at Global Insight, a consultancy, said: “It appears that the housing market is increasingly faltering in the face of the financial market turmoil and the increasing affordability pressure on house buyers.

“Going forward, housing demand seems set to lose further significant momentum. Mortgages rates are rising as a consequence of the liquidity crunch, while the Northern Rock crisis may hit confidence and increase consumers’ wariness about buying a house.”

Homeowners have had to cope with five interest-rate rises between August 2006 and July this year. Bank rate has gone up from 4.5 per cent to 5.75 per cent adding £156 a month -£1,875 a year - to the monthly payments of someone with a £150,000 interest-only loan.

Hundreds of thousands of borrowers will come to the end of fixed-rate mortgages between now and the end of the year. They have so far been protected from the rising interest rates, but they face a payment shock. The leap in payments could be even bigger than many are expecting because variable-rate deals have got more expensive as a result of the credit crunch.

Borrowers will be hoping that the Bank of England provides some relief on Thursday by slashing interest rates. However, economists say a cut is far from a done deal.

Vicky Redwood at Capital Economics, a consultancy, said: “Signs of a slowdown are probably not enough to prompt the Monetary Policy Committee to cut rates later this week.”