The number of mortgages approved for people buying a house sunk to a new record low during May, figures showed today.
Loans agreed for people moving home slumped by 28 per cent during the month to just 42,000 - a third of the number agreed in May last year, the Bank of England said.
Mortgage lending also nose dived on the back of recent weak approvals, to hit a seven-year low of just £4.07 billion.
Economists had been predicting that both approvals and net lending, which strips out redemptions and repayments, would be down on April's level due to the ongoing problems in the mortgage market and house price falls.
But the decline was steeper than they had been expecting, with net lending a third lower than in April and 65% below the figure reported for June last year.
Even approvals for people remortgaging, which have been buoyed in recent months by homeowners coming to the end of short-term fixed rate deals, were depressed.
Around 90,000 home loans were approved for people remortgaging, down from 100,000 in April.
Today's figures come as property information group Hometrack reported that house prices fell for the ninth month in a row during June, losing a further 1 per cent of their value.
Capital Economics described the data as "absolutely dire", warning that the fall in mortgage approvals pointed to house price falls of 15 per cent to 20 per cent this year.
Vicky Redwood, UK economist at Capital Economics, said: "The latest news on the UK housing market is absolutely dire, with the number of mortgage approvals for new house purchase slumping way below the early 1990s lows.
"And with fixed mortgage rates still rising, don't expect a recovery in housing market activity any time soon."
Howard Archer, chief UK and European economist at Global Insight, also expressed concern about how far the current house price correction would go.
He said: "(This is) more very disturbing housing market data that adds to already serious concerns over the likely depth and length of the housing market correction.
"Very low housing market activity seems certain to feed through to further depress already markedly weakening house prices."
He added that Global Insight now expects house prices to lose 24 per cent of their value compared with their August 2007 peak.Reuse content