Mortgage lending slipped back towards a record low in October, as consumers turned to their deposits to fund other spending.

Figures released this morning by the British Bankers' Association (BBA) show mortgage approvals fell to 21,584 last month, compared with 23,383 in September and a record low of 21,363 in August. The BBA said that approvals fell by 52 per cent, down from 45,105 in October 2007.

Lending from Britain's main high street banks fell to £2.9 billion, from £3.5 billion in September, and £1 billion below the previous six month average figure of £3.9 billion.

Consumer credit also remained muted last month. The BBA reported a rise of £0.3 billion in October, although this is higher than September's £0.2 billion.

David Dooks, statistics director at the BBA, said: "Comparison of current lending levels with last year is obscured by the very different economic conditions that exist now, reflecting a much reduced appetite for borrowing. Mortgage approvals remained low, consumer credit was subdued, and people used their deposits to fund spending in October."

Yesterday, Alistair Darling announced a number of measures intended to stimulate the housing market, including a three-month grace period for homeowners facing repossession.

Mr Dooks told Times Online: "They must help bolster consumer demand to some extent given that they are putting money back in people's pockets.

"Whether that's enough, only time will tell." He said it would not be the Pre-Budget measures alone which will help the market to recovery. Other government support and the Bank of England's Credit Guarantee Scheme were also important.

"That's the key to the problem, getting the financial markets working in an orderly way again," he said.

The figures from the BBA follow a warning from Sir James Crosby that net mortgage lending could fall to zero over the next two years.

The long-awaited Crosby Review into mortgages, commissioned in April, was published yesterday alongside the Pre-Budget Report.

Sir James, the former chief executive of HBOS, said pressures on wholsesale funding markets and the closed securitisation market had left lenders unwilling to provide credit to businesses and consumers.

"For as long as these pressures remain, most lenders will have no incentive to expand their balance sheets," the review says.

"Unprecedented as such a development would be, there is therefore a possibility that net mortgage lending falls to zero over the next two years."

The review warns of the broader impact of so severe an evaporation of lending.

"A sustained reduction in mortgage finance on this scale would clearly have wide implications for the market and the UK economy."

Crosby Review: Key recommendations for Government

— Encourage banks to standardise mortgage-backed securities

— Encourage the International Accounting Standards Board to reassess its "fair-value accounting" principle, which has forced banks to cut the value of their assets and caused the squeeze in interbank lending

— Argues there is a "strong case" for Government intervention in the mortgage market, to guarantee £100 billion of mortgage-backed securities in 2009 and 2010