Mortgage lending collapsed during October, diving by nearly 70 per cent to reach the second lowest figure on record, the Bank of England said today.
Just £459m was advanced during the month, well down on September's £1.49bn and only 6 per cent of the level for October 2007.
The steep fall was driven by the ongoing shortage of capital banks have to lend.
It may also reflect a renewed tightening in their lending criteria in the wake of the collapse of Lehman Brothers in September, which triggered a new round of volatility in the financial markets.
The figure was the second lowest recorded by the Bank since it began collecting data in this format in 1993.
The low was reached in August this year when net lending slumped to just £176m as potential buyers delayed purchases while they waited for the Government to announce its intentions on stamp duty.
Total mortgage advances were also subdued during October, with £16.99bn advanced, just over half the sum lent in October 2007, and the lowest figure recorded since June 2002.
But, on a brighter note, the number of mortgages approved for house purchase has remained stable for the past four months.
Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "An extremely weak set of Bank of England mortgage approvals and lending data suggest that house prices still have a long way to fall.
"Housing market activity is exceptionally low compared to long-term norms."
Philip Shaw, of Investec Securities, said: "The one bright point is that approvals haven't fallen further. The various measures to support the banking sector will filter through in due course."
The lending figures come as data from property intelligence group Hometrack showed that house prices in England and Wales dropped by 1.1 per cent during November.
But the group said there were signs that sales volumes may be bottoming out, with the market now consisting of a relatively small number of committed buyers able to access finance, and needs-based sellers who were pricing their homes more realistically.
The Bank of England figures also showed an increase in unsecured borrowing, with lending through credit cards, overdrafts and loans rising by £844m in October, up from the previous month's very weak increase of £345m.
But the figure was still slightly below the recent six-month average, and less than half the £1.79bn borrowed in October 2007.
Within the total, credit card borrowing rose by £398m, up from £274m in September.Reuse content