The crisis engulfing the UK’s housing market increased as it was revealed annual prices fell for the first time in three years.

A drop in mortgage approvals to home buyers added to the list of grim statistics hitting the housing sector.

The number of mortgages being approved to home buyers fell for the fifth month in a row in January, according to Bank of England figures.

About 39,600 mortgages were approved for house purchase in January, down from 40,500 in December. Excluding the pandemic, the latest total marked the lowest number of approvals since January 2009, when 32,400 were recorded.

The actual interest rate typically paid on newly drawn mortgages increased to 3.88 per cent in January, according to the Bank’s Money and Credit report.

Andrew Bailey, Bank of England governor, further added to home buyers’ misery when he warned that interest rates may need to go up again to slow the cost of living down. Higher rates may be appropriate, he said.

“I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more,” he said. The Bank’s interest rate setting committee would see more information about the impact on the UK economy of a series of increases before judging how best to wrestle inflation back to its target 2 per cent rate from its current 10.1 per cent.

House prices fell by 1.1 per cent year-on-year last month, according to figures from the Nationwide.

Prices are now 3.7 per cent lower than their August 2022 peak. The last time UK house prices contracted annually was December 2012, it said.

Robert Gardner, Nationwide’s chief economist, said the mini-Budget last September sparked the tumbling prices but that while financial markets had “normalised some time ago, housing market activity remained subdued.”

“This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time.

“Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021.”

Mr Gardner said it will be hard for the market to regain much momentum with unemployment expected to grow as the economy shrinks.

“Despite the modest fall in house prices, for a prospective first-time buyer, earning the average income, looking to buy the typical home – mortgage payments remain well above the long-run average as a share of take-home pay,” he said.

“In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector where rents have been rising strongly.

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Persimmon, one of the UK’s biggest housebuilders, added to housing gloom when it announced plans to nearly halve the number of homes it releases onto the market this year.

Persimmon said it would build and sell between 8,000 and 9,000 homes in 2023, down from close to 15,000 the year before.

This year will be “difficult”, Persimmon said. Chief executive Dean Finch said: “The market remains uncertain. The sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits.”

Persimmon’s pre-tax profits fell as it set aside another £275m to deal with the cost to make building safe in the wake of the Grenfell disaster. Its profits were £731m as revenues rose to £3.8bn

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