Jan. 31 (Bloomberg) -- U.K. home values fell for a third month in January, the longest stretch of declines since 2000, and the housing market will cool further as demand from property investors wanes, Nationwide Building Society said.

Prices declined 0.1 percent from December, when they dropped 0.4 percent to 180,473 pounds ($359,000), Britain's fourth- biggest mortgage lender, said today. From a year earlier, values rose 4.2 percent, the least in two years.

Home-loan approvals fell to the lowest in at least nine years last month as higher borrowing costs and a curb on lending helped drag out the worst housing slump for more than a decade. A slower market will go ``hand in hand'' with weaker consumer spending, Bank of England Governor Mervyn King said last week.

The mortgage data ``undoubtedly signals a continued cooling in annual house-price inflation,'' Martin Gahbauer, a senior economist at Nationwide, said in a statement. ``New demand from buy-to-let investors is likely to weaken in 2008.''

Consumers, already burdened with record 1.4 trillion pounds of debt, face higher costs for loans after banks around the globe posted at least $133 billion in losses from the collapse of the U.S. subprime mortgage market.

Mortgage Rates

The average rate on a two-year fixed-rate mortgage for 95 percent of a property's value rose to 6.53 percent in December from 6.44 percent the month before, according to the Bank of England. The central bank's credit conditions survey showed banks plan to limit access to all debt in the first quarter.

Today's report by Nationwide is the third this week to show a slowdown in the property market after prices tripled in the past decade. Mortgage approvals dropped to the lowest since records began in 1999 in December, the Bank of England said yesterday. Hometrack Ltd. said on Jan. 28 that home values fell for a fourth month in January.

Economists including Roger Bootle at Deloitte & Touche LLP forecast prices may drop 5 percent this year.

All 30 economists in a Bloomberg News survey forecast the Bank of England will cut interest rates a quarter point to 5.25 percent on Feb. 7. Policy makers kept the benchmark rate unchanged at 5.5 percent this month.

Still, King said on Jan. 23 that the central bank faces a ``difficult balancing act'' as higher energy costs mean Britain faces faster inflation as well as slowing growth.

``We definitely think there will be a 25 basis point cut next week and certainly another one in may; then we're watching how the inflation picture develops,'' Gahbauer said in an interview on Bloomberg television.

Nationwide has compiled house-price data since 1946 and the monthly index started in 1991. The information is derived from mortgage lending data and the figures are adjusted to remove distortions from different types and locations of properties.

To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net.

Last Updated: January 31, 2008 06:49 EST