The volume of mortgages approved dropped to an 18-month low in July suggesting that housing market activity will slow during the latter part of the year, potentially placing downward pressure on residential property prices.

According to the British Bankers Association (BBA), house purchase approvals fell 19% year-on-year to 37,622 in July, down 5.4% from the 39,763 in June – the lowest level since January 2015.

Gross mortgage borrowing hit £12.6bn in July, up 6% year-on-year, the BBA said, while net mortgage borrowing was 3% higher compared to last year.

BBA’s chief economist, Rebecca Harding, said: “This month’s BBA High Street Banking statistics are the first set of borrowing figures gathered since the EU referendum.”

“The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum vote,” she added.

Although mortgage approvals across the first seven months of the year are 2% higher than the corresponding period last year, economists at IHS Markit believe that the slowdown in July may indicate that residential property prices could fall over the next 18 months.

Economist Howard Archer of IHS Markit said: “We suspect that house prices could ease back by around 3% over the latter months of 2016 and there could well be a further 5% drop in 2017. This suspicion is fuelled by the BBA reporting that mortgage approvals slowed to an 18-month low in July.”

Mark Harris, chief executive of mortgage broker SPF, noted that July and August are traditionally quieter times of the year for the housing market, and said that the “real test” will come in September.

“Once people get back from holiday, then we will see whether they are making decisions to buy or whether they put these on hold until there is further clarity,” he said.