New figures released today show gross mortgage lending declined to an estimated £23.8 billion in June, down three per cent from May.
The Council of Mortgage Lenders (CML), which compiled the figures, said there had been a 32 per cent fall since June last year.
"Market activity during a traditionally a busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand," CML director general, Michael Coogan.
"While by historic comparisons we still have had a good level of gross lending, new net lending has been constrained in 2008 and this picture will continue for the rest of this year."
The decline between the first and second quarter was a marginal, at one per cent.
However, the CML would usually expect an increase in spring.
The year-on-year decline has gathered pace in recent months; lending in the first quarter of 2008 was down 11 per cent on 12 months earlier, while the second quarter was down 21 per cent.
"Government efforts to help housing associations purchase new-build properties and borrowers to save for a deposit are welcome, but are likely to have only a marginal impact on the housing market," said Mr Coogan.
This week the government announced a 'rent now, buy later' scheme, with the ambition of getting more first-time buyers onto the housing ladder.
"The recent reduction in short-term fixed-rate mortgage costs is a small bit of welcome news for hard-pressed households facing significant pressures on their finances from the higher cost of food and fuel, in particular," continued Mr Coogan.
"However, borrowers on tight budgets will have to plan ahead to manage higher mortgage payments than they have been used to. Speak to your lender early remains the advice for anyone struggling to pay."
Commenting on the figures Howard Archer, chief economist at analysts Global Insight, said: "There is just no let up on the bad news on the housing market, with the very low level of mortgage activity for house purchases being a consequence of the toxic mix of stretched buyer affordability and very tight lending conditions.
"Elevated affordability pressures on potential house buyers stem from high house prices and modest disposable income growth, while very tight credit conditions have led to markedly fewer and more expensive mortgages being available."
