A sharp drop in mortgage approvals, to their lowest level for any September for seven years, yesterday confirmed that the decline in the property market is gathering pace.

Mortgage approvals fell 27 per cent in the year to September, the British Bankers’ Association said, to 52,685, the smallest number of approvals for that month since 2000. Approvals are the key measure of activity in the property market and a decline is seen as an early indicator of a slowdown in house prices.

Fionnuala Earley, chief economist at Nationwide, said: “We had been expecting the number of mortgage approvals to come down as potential buyers grapple with the problems of af-fordability, nervousness and the future direction of house prices.” The building society expects annual property inflation to slow to zero next year.

The National Institute of Economic and Social Research (NIESR) said yesterday that it did not expect a housing crash, as it published a relatively optimistic quarterly review of the economy. NIESR said that Britain’s growth rate would slow markedly next year, to 2.2 per cent from 3.1 per cent this year. But it said that was not because of the summer’s financial turmoil, which it forecast would only have a “small domestic impact”.

Instead, growth would soften because of a weaker outlook for net trade, low income growth and the moderation in the housing market.

Surveys by the Royal Institution of Chartered Surveyors have suggested that house prices are already falling at their fastest pace in two years.

Earlier this week Kate Barker, a member of the Bank of England’s Monetary Policy Committee, said that house prices appeared to be overvalued and could suffer from a change in people’s expectations, amplified by uncertainties in the buy-to-let sector.