UK house prices
Nationwide revealed that the average UK house price dipped by 0.2% in September Reuters

The Bank of England has eased its curb on mortgage lending after data revealed that UK house prices, and approvals, fell for the first time in 16 months.

According to the BoE's Prudential Regulatory Authority (PRA), banks will still have to adhere to stricter risky mortgage lending conditions but firms that report less than £100m (€129m, $162m) in new lending annually, would escape the restriction.

"This means that lenders who extend less than £100m in value or fewer than 300 in number of relevant regulated mortgage contracts each year fall outside the scope of the policy," said the PRA in a statement.

"[This will avoid] a disproportionate impact on niche lenders."

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The BoE is capping mortgage lending as of 1 October. Banks will only be able to comprise 15% of their net new mortgage lending of loans worth 4.5 times or more the applicant's income.

Meanwhile, the Financial Conduct Authority (FCA) has forced lenders to conduct stricter affordability tests on potential borrowers, to ensure they can make repayments in a number of difference scenarios, such as materially higher interest rates.

These measures have been blamed for causing a slump in the number of mortgage approvals for home purchases for August and a downturn in housing prices.

BoE data shows that there were 64,212 residential mortgage approvals in August, down from July's 66,100 and below the six-month average of 65,738. But it was higher than the 62,226 in August 2013.

According to the Office for National Statistics (ONS), the average price of a UK home hit £272,000 (€348,757, $442,631.) in July 2014, a leap of 11.7% over the year.

However, Nationwide said the average UK house price dipped by 0.2% in September - the first drop in 16 months.

"We are pleased that the PRA listened to the CML and other organisations who argued that the high loan-to-income lending limit was anomalous for niche lenders in the high net worth lending market," said Paul Smee, director general at the Council of Mortgage Lenders (CML).

"While it is not yet entirely clear how this approach will affect individual lenders, it is a clear improvement on the original implementation proposal."