The number of mortgages approved fell by almost a third in April 2012 to just 36,000 as fears over the impact of the euro debt crisis continue to dampen confidence, according to some analysts.
This has triggered fears that house prices could fall sharply by the end of the year.
The Council of Mortgage data (CML) reported that mortgage advances for house purchases fell in April, particularly among first time buyers.
The slowdown in mortgage advances was particularly marked among first-time buyers -down 48 per cent month-on-month and 12 per cent year-on-year to 12,600.
Significantly, there was also a drop of 15 per cent month-on-month in mortgage advances to home owners, although they were up 3 per cent year-on-year at 23,400.
Howard Archer at Global Insight said that house prices will fall 3 per cent this year but it could get worse: “The danger that house prices could fall even more than this is being lifted by the increased downside risks to the UK economic outlook, particularly coming from the problems in the Eurozone centred on Greece and Spain.”