Mortgage lending slumped 7 per cent last month as the credit squeeze and sliding house prices continued to take a toll on borrowers and lenders.

Homeowners and buyers borrowed £24 billion in February, down from £25.9 billion in January, and 6 per cent less than in February last year, the Council of Mortgage Lenders (CML) said. The CML gave warning that the “slower phase in the housing market” would continue unless the Bank of England made more effort to help mortgage lenders. This came despite the Bank's pledge to double its weekly funding to more than £10 billion.

Michael Coogan, director-general of the CML, welcomed the Bank's move “as a step in the right direction”, but said “a programme of more aggressive, broader-based intervention would be entirely appropriate for the Bank in the current environment of uncertainty”.

Cash-strapped borrowers are facing increasing difficulties in getting a mortgage as lenders seek to protect their margins. A scarcity of funding for lenders on the credit markets has led most banks and building societies to raise their rates and become more picky about their customers. Homebuyers who do not have a 5 per cent deposit are now struggling to get a mortgage.

A significant number of lenders, including Nationwide, the UK's biggest building society, are charging higher rates for borrowers who do not have a 25 per cent deposit.

Earlier this week, Kate Barker, a member of the Bank of England's Monetary Policy Committee, said that first-time buyers would still face difficulties in affording a mortgage even if house prices fell further. “We may see prices adjust downwards but there is no clear evidence that affordability will improve,” Ms Barker said.

The lack of funding in the markets prompted two building societies to withdraw all but their most expensive mortgage deals on Tuesday. Three other building societies are restricting their offers to buyers and homeowners in their local area.

At the same time, Halifax, Britain's biggest mortgage lender, increased its mortgage rates for the third time in six weeks, raising its two-year tracker deal by 0.25 per cent for new customers, despite the fact that interest rates were kept on hold at 5.25 per cent.

Mr Coogan said: “Demand for mortgages remains strong but cannot be fully met from existing funding. This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity.”

Experts have raised concerns that the difficulties facing first-time buyers could further depress the market. Mel Bien, of Savills Private Finance, a mortgage broker, said: “First-time buyers are the life blood of any housing market. If people can't sell on their starter homes, they can't move up the ladder and everything grinds to a halt.”

Philip Hammond, Shadow Chief Secretary to the Treasury, said: “This is more evidence of how the credit squeeze is affecting ordinary families. Yet again, people will be asking if Gordon Brown has properly prepared our country for the economic challenges we now face.”

Last week the CML said that the number of new homebuyers taking out mortgages fell to a nine-year low in January. Only 50,300 buyers were granted a home loan, more than a third fewer than in January 2007.

Mortgage activity is likely, however, to be supported by the large number of homeowners, estimated to be 1.4 million, who are coming to the end of their fixed-rate deals this year.