The number of mortgages approved last month for new homebuyers fell to its lowest level for at least eight years, fuelling speculation that interest rates will be cut next month.

Figures from the Bank of England that were weaker than expected showed that building societies and banks approved 73,000 loans for house purchases in December, down from 81,000 in November and 114,000 in June. It is the lowest level since the Bank’s mortgage data began in its present form in 1999 and the lowest figure since 1995.

Economists had predicted that new home loans in December would fall to 79,000.

The figures were released a day after it emerged that the cost of buying property had increased by 351 per cent since 1996. Higher house prices and a growing reluctance among lenders to grant mortgages to borrowers who do not have substantial deposits has pushed up the initial costs of homebuying.

Howard Archer, chief UK & European economist at Global Insight, said: “The mortgage approvals data provide striking evidence that housing market activity is being substantially undermined by stretched affordability and tightening lending practices. This adds to the intense pressure on the Bank of England to cut interest rates next week and to enact further reductions thereafter.”

Growth in consumer credit including personal loans and credit cards was also weaker than forecast, increasing by only £600 million, a 0.2 per cent rise from November and 5.7 per cent more than December 2006.

Approvals for remortgages rose slightly to 97,000, up from 96,000 in November, as increasing numbers of people came to the end of fixed-rate mortgage deals. A further 1.4 million people will reach the end of fixed-rate deals this year. Growth in total net lending to individuals slowed to £9.1 billion in December, below the increase in November of £9.2 billion and lower than the previous six-month average of £10 billion.

Stephen Thornton, of the Royal Institution of Chartered Surveyors, said: “The combination of reduced loan-to-value ratios and the more discriminating policy of lenders is clearly having an impact on the availability of finance for property purchases.

“There a few signs of immediate relief on this front and those attempting to get on the property ladder are likely to find the environment challenging for the foreseeable future.”

Ian Kernohan, economist for Royal London Asset Management, said: “The latest numbers indicate that the current housing slowdown is more pronounced than in 2005 and bodes ill for the next set of retail sales data.

“The fallout from the US housing crisis is spreading to the UK via a general squeeze on credit availability and the Monetary Policy Committee will seek to offset some of this effect by cutting rates again next week.”

The Bank’s figures were released as it was announced that Mervyn King had been reappointed Governor of the Bank for a further five years when his present term ends in June.

Andrew Sentance, the former British Airways chief economist and part-time professor at the University of Warwick, was reappointed to the committee for a three-year term.

The hawkish Dr Sentance, who has served on the MPC for 18 months after replacing David Walton, who died, was due to come to the end of his current tenure on May 31.

Alisair Darling, the Chancellor, said: “I am pleased that Andrew Sentence has agreed to serve a second term on the MPC. His expertise will continue to be a huge asset to economic policy-making.”

And house prices are slipping . . .

— Rightmove, a homes search website, has said that house prices slipped by 0.8 in January, after a 3.2 per cent fall in December

— Hometrack, the property research group, said that house prices fell by 0.3 per cent this month, compared with December

— Nationwide forecasts that most prices will stay static this year, but predicts small decreases in Northern Ireland and the North West of England

— Halifax says that prices will stay steady, except for falls in the North of England and the Midlands

— House prices will rise by only 1 per cent in 2008 and property sales will fall by 15 per cent, according to the Council of Mortgage Lenders