The Chancellor and Treasury have sought to clarify proposals calling for HBOS, Lloyds TSB and Royal Bank of Scotland (RBS) to resume lending to homeowners and small businesses "at 2007 levels".

In the House of Commons today the Alistair Darling said that there had been a "misunderstanding" in relation to the Treasury plan, which was announced this morning following the Government's £37 billion bail-out of the three banks.

The Council of Mortgage Lending (CML) was quick to condemn the original proposals, which included a reference to "maintaining, over the next three years...competitively-priced lending to homeowners and to small businesses at 2007 levels". The CML said that such a goal was "not prudent" and that it was "very unlikely that we will see lending return to 2007 levels in the near-future."

But the Chancellor and Treasury have since attempted to calm the dispute. The Treasury told Times Online that the original statement released this morning was making a general point about the desire to ensure that there was a broad range of mortgages available, in general, across the mortgage market.

Last year was a record-breaking period for the mortgage market in the UK, with over £363.8 billion in gross mortgage lending by banks and building societies, the highest level since records began.

HBOS, which owns Halifax, Lloyds TSB and Royal Bank of Scotland represented over a third of all mortgage lending.

Figures released by CML for August this year showed gross lending had slumped to just £21.8 billion, a 12 per cent fall from July and a 36 per cent fall from August 2007. Banks and building societies would have to increase lending by at least 35 per cent to meet the target.

In the last year there has been a huge fall in the number of mortgage deals available to homeowners. In July 2007 there were 15,599 different mortgage deals available, but today that has slumped to just 3,249. There were 1,079 deals for people with just a 5 per cent deposit in July last year, compared with only 53 today.

Darren Cook, of Moneyfacts.co.uk, the financial website, said: “Consumers may not be able to see tangible benefits of the Government’s actions in the short term. However, no action by the Government would have resulted in a possible meltdown of the banking system which would have adversely affected every household in the UK."

Experts believe that the Government will not seek to influence the day-to-day lending operations of the three British banks.

Following the nationisation of Northern Rock in February, the Government sought to reduce the size of the bank's mortgage book. However, these decisions were taken by a seperate board independent from Government.

Money Central: ten people who predicted the financial meltdown