Mortgage approvals have dropped 40 per cent from a year ago, with lending now at its lowest level for 13 years, according to stats from the Bank of England.
The number of loans approved for house purchases fell to 73,000 in February, with remortgaging falling to 111,000.
Figures released by the BoE also show that equity withdrawal is now at its lowest level for three years.
It says that equity withdrawal in the last quarter of 2007 fell by 33 per cent compared to the previous three months. It was down by nearly half on the same time the previous year.
Figures also show an increaser in total net lending to individuals in February to £9.8bn, which was above the increase in January and the previous six month average.
Liberal Democrat Shadow Chancellor Vince Cable says:“It is becoming increasingly clear that the downturn in the housing market is much more than just a blip.
“As the credit crunch continues to restrict lending and with many people saddled with masses of personal debt, a dramatic fall in mortgage approvals was inevitable.
He adds: “As house prices continue to fall and mortgage costs rise, we are in real danger of returning to the woes of the Tory recession with large numbers of families suffering negative equity and repossession. The Government must act now to prevent mass repossessions which will only worsen this housing crash.”