Britain's property market showed further signs of cooling as U.K. mortgage approvals for May fell to an 11-month low, figures released on Monday show, alleviating fears the sector is in a bubble.
British lenders approved 61,707 mortgages last month compared to April's figure of 62,806, according to the Bank of England, hitting its lowest level since June 2013.
The drop was driven by stricter mortgage rules introduced in April to protect against risky lending and stop the housing market from overheating. It required lenders to carry out affordability checks before issuing a loan.
"Lenders are worried about the size of their loan book and quite rightly we've learnt lessons from the last recession and putting in slightly more stringent checks," Guy Grainger, U.K. CEO at Jones Lang LaSalle, told CNBC in a TV interview.
"It is stemming some of the heat because there are these checks in place and that's definitely a good thing."
At the same time, mortgage lending rose by £1.988 billion in May, the biggest increase since July 2008, fueled by a rise in house prices. In the three months to May, mortgage lending rose at an annualized rate of 1.7 percent, the quickest growth since September 2008.
U.K. house prices saw a 9.9 percent increase in the year to April 2014, according to the Office for National Statistics, with London prices soaring 18.7 percent, compared to the 6.8 percent rise in the north east of the country. While some experts have put London's ballooning prices down to foreign cash buyers, many analysts note that a big housing shortage is causing the rise.
"The reason we've got such a heated market in London is because there is a massive undersupply. We're only developing about 20,000 new homes a year and we need 45,000 new homes, and every year that continues we'll see this widening in the gap between demand and supply," Grainger said.
Rate hike timing
The Bank of England added its voice to the U.K.'s real estate debate when it introduced plans to cap risky mortgage lending last week in a move that is allowed under its remit. The central bank's Financial Policy Committee (FPC) said lenders are not allowed to issue more than 15 percent of new mortgages over 4.5 times a borrower's income and must make sure a customer can afford to repay the loan if interest rates were to rise by 3 percent.
Bank of England governor Mark Carney has been criticized by lawmakers for being an "unreliable boyfriend" because of his mixed signals over when the U.K. will see its first interest rate hike. An interest rate hike will have an effect on the cost of borrowing and the ability for someone to repay loans and mortgages.
Analysts said the rules introduced by the Bank of England were rightly cautious and the latest mortgage figures do not signal a prolonged period of weakness in Britain's real estate sector.
"This weakness proves the FPC were right to tread cautiously and not do anything to compound the slowdown," Ed Stansfield, chief property economist at Capital Economics, told CNBC in a phone interview.
"Most of the broader economic news has been getting better and we suspect this slowdown is a little bit of a reaction to the strong pick up in lending seen earlier this year. So things are just calming down as the new mortgage rules set in. This is not a sustained period of weakness and will pick up."
- By CNBC's Arjun Kharpal