The number of new mortgages agreed by leading banks edged higher last month, raising hopes that the worst of the drought in the home-loans market may have passed.

A total of 22,448 loans for house purchase, rather than remortgaging, were approved by banks during July. Although this was still a drastic 65 per cent lower than levels a year earlier, it marked a small rise from the record low of 22,369 set in June, according to the British Bankers' Association (BBA).

Economists and housing market experts said that the figures at least suggested that mortgage lending may have stabilised at very subdued levels, but they sounded warnings that this may do little to put a floor under tumbling house prices.

David Dooks, the BBA's statistics director, said: “Numbers of approvals levelled off in July. It would, however, be premature to think that the housing market will now start to recover.”

In a further symptom of the continued severity of the housing slump, Bovis Homes, the housebuilder, cut its dividend sharply as it reported pre-tax profits down to £11.7 million in the first half, from £58.4 million in the same period last year. Bovis's first-half sales fell by more than 40 per cent to £149.3 million, from £259.9 million.

Bovis, which recently cut 400 jobs, said that housing market conditions were the toughest it had experienced. It predicted that the problems would persist for the foreseeable future.

The credit crunch's toll on mortgage activity was also shown by a steep fall in previously booming buy-to-let lending reported by the Council of Mortgage Lenders. The overall number of buy-to-let loans agreed in the second quarter dropped to 69,800, down by 21 per cent from the same period last year. Buy-to-let loans for house purchase, rather than remortgaging, fell by a third to 31,650, the council said.

Money Central: London house price figures, borough by borough