Mortgage lending barely rose at all in Britain in August, with the increase shrivelling to two percent of what it went up by a year ago.
Other Bank of England data on Monday also showed fewer home loans were approved in Britain last month than at any time since records began a decade ago.
The figures highlight the extent to which the credit crunch has sucked the lifeblood out of Britain's housing market where property prices are falling at their fastest pace in more than 25 years.
Mortgage lending rose by just 143 million pounds last month, a mere two percent of what was advanced in August 2007 and the weakest growth since the series began in April 1993.
Analysts speculated net lending could even turn negative before long.
"It's quite possible that given current market conditions that the stockpile of mortgages actually falls back given the continued strains created by the credit crunch," said Philip Shaw, chief economist at Investec.
Mortgage approvals for house purchase, a key forward-looking indicator of housing demand, fell for a 13th consecutive month to 32,000, less than a third of the total this time last year.
WORSE TO COME?
The nationalisation of Bradford & Bingley, Britain's biggest provider of buy-to-let and self-certification mortgages, could reduce the supply of mortgages still further.
The government took the troubled lender into public administration on Monday, making it the second British bank to be nationalised this year.
"The removal of another lender from the market place will compound the difficulties first-time buyers face in securing a reasonably priced loan," said Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors.
"Mortgage approvals could continue to fall to new lows over the coming months."
A separate survey by property consultants Hometrack showed British house prices fell for a 12th month running in September suggesting the government's decision to raise the threshold for stamp duty has done little to support the housing market.
The Bank of England has held interest rates steady at 5 percent since April but a deluge of bad news on the economy has raised expectations it will cut rates before long, despite above-target inflation.
Consumer confidence is at rock-bottom and unemployment and home repossessions are on the rise. More than 32,000 Britons joined the dole queue in August, the biggest monthly rise since the tail end of the country's last recession in 1992.
"This is exactly the sort of negative feedback loop that the Monetary Policy Committee is fearful of and in our view supports the case for a rate cut at the October meeting — why wait until November," said Alan Clarke at BNP Paribas.
