UK mortgage lending last month showed a year-on-year drop for the first time since July 2005, according to industry figures yesterday which add to evidence of a sharp housing market slowdown.

UK mortgage lending last month showed a year-on-year drop for the first time since July 2005, according to industry figures yesterday which add to evidence of a sharp housing market slowdown.

The figures appeared to support the City's expectations of further near-term cuts in UK interest rates.

These expectations were boosted significantly by the revelation on Wednesday that the Bank of England's Monetary Policy Committee had voted nine-to-nil for the quarter-point cut in UK base rates to 5.5% which was implemented on December 6. Minutes of this meeting revealed that recent evidence of a more pronounced slowdown in the housing market than had been expected was one of several key factors which influenced the rate cut decision.

The prospect of further UK rate cuts continued to push sterling lower yesterday.

The pound hit a one-and-a-half-year low against a basket of currencies. Sterling opened at 99.40 on the Bank of England's trade-weighted measure yesterday - down 4.6% on the start of the year and on track for its biggest annual percentage fall for more than a decade.

Sterling slid further against the euro, with the single currency trading up more than half-a-penny on the day around 72.37p last night.

The pound, which had fell below $2 during Wednesday's session on the back of publication of minutes of the MPC meeting, slid sharply against the dollar again yesterday and was last night trading at around $1.9828.

The Council of Mortgage Lenders, which represents banks, building societies and other lenders which make around 98% of all home loans in the UK, said gross lending declined to £30.7bn in November. This was down 8% on the £33.2bn figure recorded for November last year.

The CML said: "This is the first time monthly lending levels have dropped below the same month in the previous year since July 2005, and demonstrates the market slowdown has started."

CML director-general Michael Coogan predicted a continuation of this slowdown but attributed it mainly to banks reining in their lending, rather than to any weakness in demand from people for mortgages.

He said: "As we had forecast, lending in November dipped below its 2006 equivalent for the first time this year and we expect this trend to continue into 2008. However, while lending will be subdued in coming months, we see this as primarily a result of lack of available funding rather than lack of consumer demand."

Coogan added: "We welcome the recent initiative by the Bank of England with other central banks to inject liquidity. This support needs to continue, and be increased, in the coming months."

The CML's November gross mortgage lending number was also down 8% on the £33.5bn figure for October.

Figures from the Building Societies Association also pointed yesterday to a continued cooling of what had for a long time been a red-hot UK residential property market.

The BSA said fresh mortgage approvals, a more forward-looking indicator of demand for home loans than actual lending, totalled £4.24bn in November. This was down from £4.37bn in the same month of last year.

Meanwhile, the BSA figures signalled that building societies continue to benefit from the run on mortgage bank Northern Rock in September, which was halted only when Chancellor Alistair Darling stepped in to guarantee deposits.

The BSA numbers showed building societies attracted a net £2.35bn of savings inflows in November - nearly three times the amount in the same month last year.

In August, before the Northern Rock debacle, these net receipts amounted to only £1.39bn. They rocketed to £2.82bn in September and then rose further to £3.02bn in October.

Howard Archer, chief UK economist at consultancy Global Insight, said yesterday: "The generally softer mortgage data for November provide further evidence that housing market activity is slowing in the face of stretched affordability as well as the tightening lending practices resulting from the credit crunch."

Many mortgage providers cut their range of home loans as the global credit crisis, which took its toll on Northern Rock, sent interbank lending rates surging. Financial institutions have also been tightening lending criteria.

Archer said he now expected UK house prices to fall by 3% next year, having forecast previously that they would be flat. He also predicted house prices would "remain muted for an extended period beyond 2008".

He said: "Affordability is being pressurised by elevated house prices, modest disposable income growth and the significant overall rise in mortgage rates since August 2006.

"Meanwhile, rising concerns about the state of the economy may well make people unwilling to risk stretching themselves to buy a house.

"Furthermore, growing speculation that the housing market could see a sharp correction over the coming months may also increasingly deter potential house-buyers."

He added: "House prices in London could be markedly hit by City job losses and reduced bonuses, particularly if the credit crunch and financial market turmoil continues for some time to come, which seems highly likely.

"The credit crunch and sub-prime mortgage concerns mean lenders are becoming much more careful about whom they lend to, and on what terms.

"The credit squeeze is making it increasingly difficult for mortgage lenders to get hold of adequate funds to finance new mortgage business. This is bound to weigh down on housing market activity."

However, Archer emphasised the downside for UK house prices should be limited by a lack of supply, the increasing number of households, high employment and the fact that few vendors were currently having to sell for "distressed" reasons.

He also cited his belief that the Bank of England would cut interest rates by a further three-quarters-of-a-point in 2008.