The collapse in mortgage lending continued last month as banks further tightened the screws on home loans and would-be buyers shied away from the plunging housing market, new figures confirmed today.

The total amount of mortgage lending by banks and building societies last month fell to just £17.7 billion, the lowest monthly figure for more than three-and-a-half years, the Council of Mortgage Lenders (CML) reported.

The estimated figure for gross mortgage lending in September was down another 10 per cent from August alone, and was 42 per cent down from a year before.

Although mortgage lending typically suffers a seasonal drop in August and September, when many people are on holiday, the £17.7 billion- worth of loans was also the lowest figure for any September since 2001.

Gross lending was estimated by the CML at £62 billion over the third quarter as a whole, down by 16 per cent from the second quarter, and by 37 per cent from the same period last year.

The plunge in home loan activity comes as the mortgage drought triggered by the global credit crisis continues to lead banks to hoard funds and tighten conditions for prospective borrowers.

However, Michael Coogan, the CML's director-general, insisted that the mortgage market was “open for business”. He conceded that a combination of wariness among potential homebuyers as house prices continue to tumble, leading to weak demand

for loans, and banks' funding constraints was set to keep mortgage lending figures weak into the spring of next year.

The CML estimated that annual gross lending in 2008 would be about £255 billion, compared with £363 billion in 2007, and that net lending, after stripping out loans paid off, would be about £40 billion, less than half the £108 billion figure achieved last year.

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