The number of mortgages approved for house purchase dived by nearly 70% during the past year to hit a new record low, new figures show.
Bank of England data showed that just 36,000 new loans were arranged for people moving house during June as the credit crunch continued to tighten its stranglehold on the mortgage market.
The level of approvals was 68% lower than in June last year, and fell by 12% compared with the previous month, to be the lowest since the Bank's records began in 1993.
Mortgage approvals slumped across the board, with the number of loans arranged for people remortgaging dropping to 84,000, from 90,000 during the previous month, while approvals for buy-to-let and equity release were also down.
Unsurprisingly, given the recent run of weak approvals, the amount of money lent during the month also nosedived.
Net lending, which strips out redemptions and repayments fell to a near eight-year low of £3.1 billion - 69% less than in June 2007.
The dire figures, which were below economists expectations, spell further bad news for the already struggling housing market.
The mortgage drought is exacerbating the housing market downturn as potential buyers struggle to raise the finance they need, making it difficult for people to get on to or trade up the property ladder.
A Government-commissioned report on mortgage financing today warned that the market would not return to normal for another two to three years.
The review, led by the former head of the Halifax Bank of Scotland, Sir James Crosby, said there was no quick fix to ease the log-jam in home loan funding and stopped short of providing any firm solutions to the problems.
But Sir James mooted the idea of further temporary support from the Government to help stimulate the mortgage-backed securities market.
The current problems are being felt particularly keenly by building societies, which saw outstanding mortgage debt fall by £526 million in June - the first time that consumers have repaid more than they borrowed since its current records began.
The Building Societies Association said the fall was due to the problems in the housing and mortgage markets, as well as the conservative lending strategy adopted by building societies.
The new lending figures come the day after the Land Registry said house prices in England and Wales fell by 1% during June to leave the average cost of a home just 0.1% higher than it was 12 months ago.
Nationwide Building Society, which is already showing UK house price falls of 6.3% during the past year, is expected to report further gloomy data on the sate of the housing market tomorrow.
Howard Archer, chief UK and European economist at Global Insight, said: "Yet more very disturbing mortgage data that heightens concerns over the potential depth and length of the housing market correction.
"The Bank of England data graphically highlights that housing market activity continues to be throttled by stretched affordability and tight lending conditions."
Capital Economics, said the latest drop in mortgage approvals pointed to house price falls of at least 20% this year, with prices falling by 35% from peak to trough.
But despite concerns that the rising cost of living would force people to borrow money in order to make ends meet, unsecured lending remained subdued during June.
Consumers debt on credit cards, overdrafts and loans rose by £872 million during the month, compared with a recent six month average of £1.2 billion, the Bank of England said.