Loans worth £459 million were offered in October – compared to £1.49 billion the previous month. The Bank of England said the figure was the second lowest on record since 1993, dramatically indicating the effect of the credit squeeze on the UK housing market.

But the total number of deals offered in October was broadly similar, at 32,000, to the preceding three months – though almost two-thirds down on the 88,000 approvals in October last year.

This will place further pressure on the Bank of England to deliver another cut in interest rates when its monetary policy committee announces its monthly decision on Thursday.

Last month, it slashed rates by 1.5 percentage points, taking its base rate to 3 per cent.

Experts believe the relative stability in the number of loans – down just 1,000 month-on-month – indicated the housing market may be close to bottoming out.

But a government-commissioned report from former bank boss Sir James Crosby, which was published alongside last week's emergency Budget, suggested there was a risk of no new loans being offered next year.

House prices are broadly static in Scotland, but are continuing to drop across England and Wales. In September, the government announced it was scrapping stamp duty for a year on homes costing up to £175,000 in a bid to revitalise the first-time buyers' market.

The dramatic slump in the scale of mortgage lending was blamed on a tightening of conditions by lenders, in the wake of the collapse of US bank Lehman Brothers in September. Many lenders now require prospective buyers to provide deposits of around 20 per cent or more to secure funding.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said cuts in the Bank of England base rate – and in the rate that banks lend to each other – had not yet filtered through to the housing market. He said: "First-time buyers and homeowners alike are still struggling to buy property as banks are still requesting sizeable deposits, further stagnating the property market. This will continue unless banks begin to loosen up on lending conditions."

Ed Stansfield, property economist at Capital Economics, said: "It is hard to see a recovery in the housing market gaining traction any time soon.

"Indeed, as the economic downturn gathers pace, 2009 may well be an even tougher year for the housing market than 2008.

Activity levels will remain close to rock-bottom for several months yet and house prices will fall markedly further."

Howard Archer, chief UK and European economist at IHS Global Insight, said house prices "still have a long way to fall". He said: "Housing market activity is exceptionally low compared to long-term norms."

Vince Cable, the Liberal Democrat Treasury spokesman, said: "As the housing market continues to fall, we should expect to see the amount of mortgage lending fall. However, a collapse of this magnitude suggests this is much more than people choosing not to move house. It is critical that the government ensures the banks start lending again to prevent this recession becoming deeper and even more painful."

Banks urged to follow RBS lead on mortgage reprieve

HIGH street banks were yesterday urged to follow the lead of Royal Bank of Scotland and allow homeowners threatened with repossession more time to pay their mortgages.

RBS, and its subsidiary NatWest, said it would not launch repossession proceedings for six months after a lender falls into arrears – compared with the previous three-month limit.

The announcement came as the government confirmed it owned almost 58 per cent of the bank after spending £19.97 billion of public money on preference and ordinary shares to keep it afloat.

RBS had already announced a freeze in the overdraft charges for small businesses.

Jim Murphy, the Scottish Secretary, said the move – coupled with cuts in Bank of England lending rates – would give hard-pressed homeowners more room for manoeuvre.

He said: "I now hope more lenders will follow RBS's lead and also do as much as possible to help borrowers in other ways by passing on – in full and promptly – cuts in interest rates and by beginning lending again to help get the economy moving."

The housing charity Shelter said it was an important step towards helping thousands of people to keep their homes. Its chief executive, Adam Sampson, said: "RBS has raised the bar for other lenders, who must now follow suit to ensure that all homeowners benefit from the same protection from repossession."

But Louise Cuming, from moneysupermarket.com, said it was merely a "clever marketing ploy" as it was rare for lenders to start proceedings before six months.