Fresh loan approvals for house purchase plunged last month, according to figures from the Bank of England yesterday, which signal rising interest rates might finally be dampening the housing market.

However, the seasonally adjusted numbers are at this stage just another straw in the wind, with the Bank also reporting overall UK mortgage lending grew at a record pace in December. It rose by a net £10.6bn - the biggest jump since these records began in 1993 and ahead of an average £9.5bn rise for the previous six months.

Economists, however, focused on the tumble in the more forward-looking indicator of fresh approvals as opposed to concluded loans.

A survey from Nationwide, meanwhile, showed house prices had risen by a relatively muted, seasonally adjusted 0.3% in January. This was their weakest rise since last May and the building society's annual house-price inflation rate dipped from 10.5% in December to 9.3% as a result.

The Bank of England said fresh loan approvals for house purchase dropped from 129,000 in November to 113,000 last month - the lowest since last April and well below the average of 124,000 for the previous six months.

Kelvin Davidson, property expert at Capital Economics, said the 16,000 fall between November and December "was within a whisker of the largest ever recorded, which was 16,500 in April 1990".

Alan Castle, economist at Lehman Brothers, said it was the biggest monthly fall in approvals since September 1997, when interest rates had been raised aggressively after the Bank of England gained independence in setting monetary policy.

Approvals for remortgaging dropped from 111,000 in November to 100,000 last month.

The Bank of England has raised base rates three times this cycle, by quarter-points last August and November and on January 11.

Davidson said of the mortgage-lending figures: "These data are the clearest indication to date that higher interest rates have started to cool the housing market. What's more, the recent decline in the RICS' (Royal Institution of Chartered Surveyors') new buyer inquiries balance points to further weakness in mortgage lending volumes. That, in turn, suggests the slowdown in house-price growth reported by Nationwide will become the norm as 2007 progresses.

"As the market enters what is traditionally its busiest period, some rebound in mortgage approvals over the next two to three months cannot be ruled out. However, the unexpectedly sharp drop in approvals in December suggests there has been a genuine shift in buyer sentiment."

Howard Archer, economist at consultancy Global Insight, said: "The Bank of England mortgage data add to the growing, but still tentative, evidence the housing market could be beginning to cool. In particular, mortgage approvals slowed markedly to an eight-month low in December from a near three-year high in November. Although lending secured on dwellings rose (by) a record £10.6bn in December, this reflects the strength of recent past mortgage approvals."

Archer added: "It is always dangerous to try to read too much into one month's data, particularly as housing data can be very volatile on a month-to-month basis and November's approvals were particularly strong. Nevertheless, the extent of the slowdown in mortgage approvals in December does suggest the cumulative 75 basis points increase in interest rates enacted so far since last August could now be starting to weigh down on the housing market."

The British Bankers' Association reported last week new mortgages approved by the big UK banks for house purchase in December were down 11.1% on the same month of 2005 at 45,533, breaking a pattern of year-on-year increases.

The Bank of England yesterday said consumer credit grew by a net £1.0bn in December - matching the average for the previous six months.