Thursday, January 24, 2008.

LONDON (Reuters) - Mortgage approvals fell nearly 40 percent to a record low in December, a sign the housing market is slowing sharply due to tighter credit conditions and weaker household finances.

The British Bankers' Association said on Thursday seasonally-adjusted mortgage approvals for house purchase fell 37.8 percent on the year to 42,088 last month, compared to 43,944 in November -- the third record low in a row.

Underlying net mortgage rose by 4.7 billion pounds last month, the BBA said, slightly stronger than the 4.6 billion increase in November but well below the recent trend.

The figures add weight to a growing body of evidence showing a rapid cooling in the housing market and are likely to boost expectations that lower interest rates are needed this year to shore up the economy.

"This adds to the already intense pressure on the Bank of England to cut interest rates in February, and to enact significant further reductions thereafter," said Howard Archer, an economist at Global Insight.

"Global Insight expects house prices to fall by 3 percent in 2008. Nevertheless, there is clearly a very real danger that a significantly sharper house price fall could occur this year. A growing risk is that the economy suffers recession, or even extended weak growth, and unemployment rises significantly."