House sales slumped to a 30-year low last month, raising fears that the downturn in the housing market could turn into a crash.

Chartered surveyors reported that an average of 17.4 transactions had been completed each month between March and May, down from 18.5 in the three months to April.

This is the lowest figure since records began in January 1978, according to the Royal Institution of Chartered Surveyors (RICS). Housing transactions are regarded as a key indicator of future trends in the housing market, because a dearth of buyers drags down prices.

News of the slump came as swap rates – the interbank lending rates that determine the cost of mortgages – spiralled yesterday, heightening concern that lenders may increase their rates further, piling more pressure on homeowners and buyers.

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Barclays, the seventh-biggest mortgage lender, said that, from today, it was increasing its rates for landlords by up to 0.5 per cent and for homebuyers and remortgagers by up to 0.3 per cent. Abbey and Bradford & Bingley increased their rates last week.

There were signs of a slight pickup in house prices as the number of surveyors reporting that prices were falling declined slightly. A balance of 92.9 per cent reported price falls rather than rises, compared with 94.7 per cent in April. However, surveyors in East Anglia and the South East are unanimous that house prices are falling.

RICS said that house prices would fall sharply if there was a surge in homeowners being forced to sell or give up their homes. The Council of Mortgage Lenders has forecast that repossessions will rise by 50 per cent this year to 45,000.

This gloom was compounded by more bleak news about activity in the market, with new instructions falling for the fifth consecutive month and at the fastest pace since June last year. London and Scotland were the exceptions, with surveyors in both areas reporting a rise in new instructions.

Some surveyors reported that first-time buyers were holding off in the hope of snapping up cheaper deals. Neil Shaw, of Chinneck Shaw, a surveyor in Portsmouth, said: “First-time buyers are reluctant to buy even if they can get a mortgage as they feel that prices are going to come down further.”

Hopes that business might pick up soon were dented as new-buyer enquiries fell for the eighteenth consecutive month, with the most pronounced fall in the East Midlands, where 83 per cent more surveyors reported that enquiries from prospective buyers fell rather than rose.

Confidence in the sales outlook improved only fractionally, with the majority of surveyors still expecting a further drop in sales over the next three months.

However, surveyors in the South East, the South West, London and Scotland were more upbeat, with the majority forecasting an increase in sales in the coming months.

Mortgage lenders have also tightened their lending criteria in the wake of the credit crunch, deterring first-time buyers from looking for a home and stalling activity throughout the market. Simon Fraser, of Waterman & Company, a surveyor in Maidenhead, Berkshire, said: “First-time-buyer enquiries are virtually nonexistent.

This is having a knock-on effect on the rest of the market.”

Only borrowers with hefty deposits can clinch the most competitive home loans. Nationwide and Halifax, the UK’s biggest mortgage lenders, offer the best deals for borrowers who have a 25 per cent deposit. Since the average price of a first home is about £147,800, new buyers need to save nearly £37,000 to qualify for these deals.

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