The number of mortgages taken out slumped by nearly 50 per cent last month as the mortgage drought left buyers scrambling to secure home loans in the wake of the credit crunch.

Mortgage lenders approved 35,417 loans for house purchases in March, down by 46.2 per cent compared with March last year, according to figures from the British Bankers’ Association. This came as additional evidence emerged of a slowdown in the housing market, heightening fears that house prices may tumble further.

Estate agents said activity in the market halved in the past year. Agents sold an average of seven properties each during March, compared with 14 per agent during the same month last year. They said that first-time buyers accounted for only 8.3 per cent of sales last month, down from 11.7 per cent in February.

The cost of an average property slipped by nearly £5,000 to £191,556 last month, according to Halifax. But experts gave warning that the lack of new entrants to the market could cause further price falls.

Lenders are still dragging their heels about passing on April’s rate cut to existing borrowers. Only 38 out of 100 lenders have so far said they will be reducing their standard variable rate nearly two weeks after the rate cut, according to Moneyfacts.co.uk.

Mortgage rates have also soared as lenders pass on the increased cost of wholesale funding. The difference between base rate and three-month sterling Libor, the rate at which UK banks lend to one another, widened fractionally to 0.886 per cent yesterday, indicating growing stress. This spread, which had narrowed in the previous six sessions, is seen as a key indidator of the intensity of the credit crunch and is an important factor in the pricing of new mortgages. Lenders signalled that the unprecendented bailout by the Bank of England announced earlier this week was unlikely to lead to a fall in mortgage rates.

Hopes of renewed action by the Bank of England to ease lending conditions with another interest rate cut next month were undercut by news of a rare three-way split on its rate-setting committee over this month’s reduction in rates. In the first such split on the Monetary Policy Committee for nearly two years, two members opposed the rate cut a fortnight ago, while one demanded a more aggressive half-point reduction, minutes of its meeting revealed.

The divergence of view on the MPC was only its sixth such three-way division in its decade-long existence and it wrongfooted the City.

Sterling leapt as economists said that this reduced the chances of a back-to-back cut in rates next month. The record showed that while six of the nine MPC members backed a rate cut to reduce risks to a fragile economy, Andrew Sentance and Tim Besley, the panel’s arch-hawks, said it was premature to cut this month.

In stark contrast, David Blanchflower, the MPC’s arch-dove, sounded a warning that Britain could mimic the grim economic fortunes of the United States and voted for an immediate half-point reduction.

The Bank remains highly concerned over persistent inflationary pressures. That threat was emphasised last night by Dr Sentance. He told the CBI that the pound was likely to stay weak for some time and he argued that this would not only fuel price pressures but help to cushion the economy from the credit crunch by boosting imports.