The number of new mortgages approved for house purchases has fallen to its lowest level since current records started Bank of England figures show.
The number of home loans approved in June fell to 36,000, down from 41,000 in May, as the slowdown continued.
The increase in total mortgage lending was also lower than many analysts had predicted, rising by £3.1bn in June.
The figures were released as a report for the Treasury outlined various options to revive the mortgage market.
Lack of supply
The number of home loans approved has now fallen for 14 consecutive months, the Bank's figures show, and the figure is at its lowest since the Bank began reporting the data in its current form in 1999.
Graph showing fall in mortgage approvals
The credit crunch has reduced the availability of mortgages, especially to those house hunters who are unable to offer a large deposit.
But in recent weeks the cost of deals to new borrowers has been cut by a number of lenders, reversing the previous trend of rising interest rates on new fixed-rate home loans.
House prices, however, have continued to drop, according to most surveys, with the Land Registry the latest to register a fall in property prices in England and Wales.
Willem Buiter, a former member of the Monetary Policy Committee at the Bank of England, forecast further big falls in house prices.
"I expect prices to fall on average by about another 20% or so, bringing the cumulative decline from the most recent peak to around 30%," he said in a blog on the Financial Times website.
An assessment of the outlook for mortgage finance was published on Tuesday by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.
One of the options outlined is for the taxpayer to guarantee to billions of pounds of mortgage market bonds to kick-start lending again.
Source: news.bbc.co.uk
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