The average home has lost £6,000 in value over the past six months in the latest sign that the housing market is on the brink of a major decline.

The number of new buyers being approved for a mortgage has fallen by nearly a half since this time last year amid fears that curbs on new home loans could drag down property prices even further. Prices have fallen for four consecutive months.

Figures published yesterday by Nationwide, the second-biggest mortgage lender, showed that house prices fell by 0.5 per cent in February, causing annual house-price growth to dip sharply to 2.7 per cent, down from 4.2 per cent in January. The value of the average house has fallen by more than £6,000 since September, Nationwide figures showed.

The Bank of England said yesterday that mortgages approved for new buyers had dropped by 40 per cent in January compared with January 2007. Just 74,000 loans were approved for buyers, the second-lowest figure in more than 12 years.
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Experts sounded alarm that the tighter lending practices could exacerbate house-price falls as first-time buyers failed to get funds. Ray Boulger, of John Charcol, the mortgage broker, said: “The speed at which lenders are tightening their criteria and raising prices is frightening. Once it becomes impossible for most people to get a mortgage without a 10 per cent deposit, the first-time buyer market will freeze up, which will have a dangerous impact on the whole housing market and the wider economy.”

Howard Archer, of Global Insight, the economic analyst, said: “It seems highly likely that house market activity and prices will continue to be dampened markedly by the combination of stretched affordability and tighter lending practices.”

Many lenders are refusing to lend to buyers who do not have hefty deposits, as they strive to protect their margins in the wake of the credit crunch and struggle to obtain funding from the credit markets. Instead, they are cherrypicking only the most risk-free borrowers.

Yesterday, Cheltenham & Gloucester, a mortgage-lending arm of Lloyds TSB, said it would not offer home loan deals to buyers who did not have a 10 per cent deposit or who had not built up …

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