Sales of existing homes drop 6.5% as credit crunch takes hold and lenders refuse loans

Pending sales of existing homes in the US slumped 6.5% in August because lenders refused requests from people seeking home loans.

The downturn, the worst for six years, is seen as more evidence that the credit crunch is spreading through the US housing market.

The National Association of Realtors' pending home sales index fell to a reading of 85.5, the lowest in six years, based on contracts signed in August. The previous low was 89.8 in September 2001.

The fall follows a drop in new home sales in August to the weakest level in five years.

Meanwhile in the UK, the boss of HBOS, the country's biggest mortgage lender, predicted a slowdown in the mortgage market.

Andy Hornby, HBOS chief executive, said at a banking conference yesterday in London that the market was experiencing a "fundamental shift" that would mean homeowners would have to pay much more for new loans.