British mortgage approvals fell more than expected in June and overall lending stalled, Bank of England figures showed, suggesting the housing market will continue to soften in the coming months.

The central bank said mortgage approvals - a gauge of house prices around six months down the line - numbered 47,643 in June, falling from a downwardly revised 49,461 in May and below forecasts for a reading of 49,000.

Net mortgage lending growth eased to 665 million pounds in June from May's downwardly revised 838 million pounds, below forecasts for a 1.0 billion pound rise.

The figures support recent evidence which indicates the housing market is running out of steam after strong house price rises last year, and come after mortgage lender Nationwide reported a 0.5 percent drop in house prices this month.

Nationwide blamed July's dip on concerns about government spending cuts and tax rises, which are likely to have a huge impact on Britons' household budgets.

"With fiscal tightening and thousands of public sector workers likely to lose their jobs, I don't see this picture changing any time soon," said Alan Clarke, economist at BNP Paribas.

Bank of England Governor Mervyn King on Wednesday pointed to continued weak credit flows as a major risk to Britain's economic recovery and said the upturn was not assured, despite stronger-than-expected growth in the second quarter.

The figures gave a modest boost to gilt and interest rate futures, as investors reckoned the central bank would keep interest rates low until there is more proof that the recovery is well established. Britain's housing market had enjoyed a revival in 2009, after a sharp slump in 2008, but the pick-up in prices was mainly due to a lack of properties on the market, rather than any improvement in underlying demand or mortgage availability. And house prices have been on a downward trajectory this year, as more people decide to sell up, while demand from buyers has eased, partly due to a reluctance to take on debt and partly because bank loans are still hard to come by. King noted on Wednesday that a gradual improvement in credit conditions seen earlier this year had come to a halt, and that the squeeze on lending was making life very difficult for smaller firms and posed a significant challenge to policymakers. Thursday's figures highlighted the constraints on borrowing and analysts said that posed a major obstacle to the recovery going forward. Consumers unexpectedly repaid 98 million pounds of unsecured credit in June, the second net repayment in three months. And the flow of money to non-financial companies - a gauge of the effectiveness of the BoE's 200 billion pounds asset purchase programme - also slowed markedly. (C ) Reuters