Mortgage approvals picked up from near record lows in January, but remain dismal for the time of year, the British Bankers' Association said yesterday.
The BBA said mortgage approvals rose in January to 44,288 from 42,343 in the previous month, but were still down by nearly a third on a year ago.
"With credit conditions likely to continue tightening, and the growing expectation that house prices will fall this year, we would still expect to see some further declines in house purchase activity looking forward," said Allan Monks, economist at JP Morgan.
"But the rise in the BBA provides some tentative signs that we may be close to the bottom of the current slowing in house purchase activity."
Underlying net mortgage lending picked up, rising £5.2 billion last month after an upwardly revised £4.9 billion increase in December.
But much of this came from remortgaging as borrowers honed in on better deals.
"Although house prices and new loans for house purchase, appear to be subdued as the housing market slows, the strength of remortgaging would suggest competition for mortgage business and switching remains high," said David Dooks, statistics director at BBA.
However, most housing market surveys still point to a marked slowing this year and the Bank of England's own mortgage approvals figures have been on the decline for seven consecutive months, hitting a decade low of 73,000 in December.
The next BoE approvals release is due on Friday with analysts expecting a further fall to 70,000 in January.
"House buyers are being pressurised by elevated house prices, modest real disposable income growth and the significant over-all rise in mortgage rates since August 2006," said Howard Archer, an economist at Global Insight.
"While the Bank of England's trimming of interest rates in December and February will help matters, the overall downward impact on mortgage rates has been limited by a lack of funds for lenders and relatively high money market rates, as well as lenders wanting higher margins due to increased risks."
He went on: "There is clearly a very real danger that a sharp housing market correction could occur.
"A growing risk is that the economy suffers recession, or even extended weak growth, and unemployment rises significantly. This would be liable to lead to a marked increase in the number of people having to sell houses for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a home.
"A sharp housing market correction could also be triggered if both sellers and buyers start expecting prices to fall sharply. This could prompt a flood of sellers putting their houses on to the market to try and sell their houses before prices fall markedly, while at the same time prospective buyers hold off in the expectation that prices will fall. Under such circumstances, a growing surplus of supply over demand would undermine prices."
Bank of England policymaker Kate Barker remains confident that a recession won't happen. "We have got this combination of shocks coming from abroad and it's difficult," she said, speaking on a visit to the Midlands. "We certainly expect a lot of volatility this year. Recession remains outside the main possibilities."
The BoE cut borrowing costs to 5.25 per cent this month but is unlikely to follow that up with another cut for a few months yet.