By David Milliken
LONDON (Reuters) - British lenders approved the fewest mortgages in more than a year last month, adding to signs that previously rapid growth in Britain's housing market and the broader economy is slowing.
The Bank of England said on Wednesday that mortgage approvals for house purchase fell to 61,267 in September from 64,054 in August -- a bigger drop than economists had expected and the lowest total since July 2013.
Earlier this year BoE Governor Mark Carney said a potential build-up in household debt due to rising house prices posed the biggest domestic threat to Britain's economic recovery.
But now the housing market seems to be slowing faster than the BoE had been banking on. Its forecast in August that mortgage approvals would average 75,000 a month in the last three months of 2014 looks implausible, economists say.
"As well as the downside risk from euro area weakness, these data confirm housing activity is another area where the BoE's August forecasts are now starting to look too optimistic," said Sam Hill, an economist at RBC.
On Tuesday night, BoE deputy governor Jon Cunliffe became the latest in a series of policymakers to say a rise in interest rates was less pressing than before, due to weak inflation, low pay growth and signs of a slowdown overseas.
Earlier on Wednesday the Confederation of British Industry said that private-sector growth had fallen to its lowest since March, as the pace of expansion returned to more normal rates after a period of catching up over the past year.
Britain economy still looks set to be the fastest-expanding major advanced economy this year, with growth of more than 3 percent, but for next year the CBI said quarterly growth rates of 0.6-0.7 percent looked more likely.
COOLING THE MARKET
The BoE and other regulators have taken a series of steps this year to cool Britain's housing market, which until recently was showing annual price growth of more than 10 percent, and twice that in London.
Since April, lenders have been required to make more detailed checks on borrowers' ability to pay back loans, and later the BoE limited how many mortgages banks can issue at high multiples of a borrower's income.
Further pressure on mortgage lending is likely to come on Friday, when the BoE is due to publish its recommendation on new leverage ratios for lenders - caps on how much they can lend relative to their capital.
The chief executive of major lender Lloyds Banking Group (L:LLOY) warned on Tuesday that this could push up the cost of mortgages, and Wednesday's data showed that net mortgage lending last month fell to its lowest since January at 1.8 billion pounds.
Unsecured consumer lending was more robust than expected, expanding by 6.1 percent, its fastest annual growth rate in eight years, which RBC's Hill said would help support consumer spending in the final months of the year.
But lending to businesses reversed August's modest gains and is now 3.1 percent lower than a year earlier.
(Additional reporting by Ahmed Aboulenein, editing by John Stonestreet)