After months and months of apparently defying gravity, with house prices soaring out of the reach of many first-time buyers, the British housing market may finally be losing altitude.

According to Bank of England figures released last week, the number of new mortgage approvals in the UK dropped to a 12-month low in April – 107,000 compared to 111,000 in March, which itself was lower than the figure for February.

And with interest rates predicted to rise to 6 per cent later this year, many of those who just managed to catch the British property market balloon before it soared out of their grasp are finding themselves increasingly stretched on a rack of personal debt.

However, despite its decline, the mortgage approval figure is considerably higher than the long-term average of 95,000 a month, and nearly 40 per cent higher than the recent low of 77,000 mortgage approvals (back in November 2005). Moreover, it shouldn't be forgotten that house prices are still rising. Indeed, property website Hometrack predicts a 4 per cent rise this year, down from 10 per cent in 2006.

But is the UK property market alone in approaching its zenith, or is this a trend apparent across Europe?

According to quarterly data just released by the European Mortgage Federation which covers the final quarter of 2006, this picture of a gradual slowdown in the rate of house price growth and indeed mortgage approvals is by no means limited to the UK.

Whilst noting that the growth of Gross Domestic Product (GDP) in the European Union by 2.9 per cent and the euro-area by 2.7 per cent in 2006, the report pointed out that in a number of EU countries "residential mortgage markets… experienced what could be termed a moderate slowdown."

In Spain, recipient of much recent negative publicity regarding market conditions, "the volume of net lending grew only by 3 per cent compared to 21 per cent in 2005. Moreover, the number of mortgage loans granted dropped from 1.7 million in 2006 to 1.6 million in 2006."

The European Mortgage Federation also revealed that the French market is losing a little steam, too, with growth in the fourth quarter of 2006 lower than in 2005. Nonetheless, both French and Spanish property prices increased at 10 and 9 per cent respectively from October to December 2006, but this too is a "slow cool down," according to the report.

In terms of annual house price growth, the fourth quarter of 2006 saw Estonia in EU pole position with a 21.2 per cent increase over the final quarter of 2005, Denmark in second with a 16.1 per cent increase, and Sweden in third place at 10.6 per cent. Buyers of Swedish property also benefited from comparatively low-interest-rate mortgages, with the average mortgage product offering an EU-low rate of just 3.63 per cent; Hungary was at the opposite end of the spectrum, with an average of 5.83 per cent – 0.58 per cent above the average UK mortgage rate.

For those looking to buy property abroad, a stable and attractive mortgage market is a significant step along the way for property markets to move from 'emerging' to 'established' status. As Jag Sodhi of Fidentia Group explains: "From an investment perspective, using debt leverage in any property market will help to improve the real cash-on-cash return, and without availability of this finance a would-be-investor is presented with a much less attractive proposition. In addition, those hopping onto the first rung of the property ladder are likely to struggle without the benefit of finance."

Bulgaria (pictured), which joined the EU in January this year and was already popular with British property buyers, has been offering foreign property buyers mortgages via its national banks since June 2005. Yet, with interest rates of anything from 6.50 to 9.90 per cent it is perhaps unsurprising that Steve Andrews of BulgarianHomeLoans.com acknowledges the mortgage market in the Balkan country needs "plenty of work to be done."

Andrews, however, is confident that "the Bulgarian banks have the attitude and hunger to compete. They are aware that if they do not provide continual improvement then more developed, customer banks from other countries may well eat into their market."

Not that they've been resting on their laurels thus far, as Andrews is quick to point out: "The last 18 months have brought seven lenders to the market, increased competition and flexibility of products and the banks' services are being tested with hundreds of applications. It has not been and is still not perfect, but we are confident that with Bulgaria's strong and growing economy, combined with a real rise in the Bulgarian property market and influence from the EU, the mortgage market for both foreigners and Bulgarians looks very good."

With many Bulgarian property agents predicting strong price growth should continue unabated for well-chosen properties, it would appear that in terms of both property prices and mortgage products Bulgaria is still some way off its zenith.

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To read the full text of Steve Andrew's Bulgarian mortgage Q&A with Paul Beasley, click here

Article first published 5 June 2007