Mortgage approvals have dropped to just 36,000 in June, a 70 per cent fall from last year.

According to the Bank of England’s figures, the increase in total net lending in June of £4 billion was below the increase in May and the six-month average of £7.5 billion.

Only 36,000 home loans were approved for house purchase, compared to 114,000 a year ago.

The value of mortgages has also dropped, from £17.3 billion in 2007 to £5 billion this year.

Simon Rubinsohn, the Royal Institute of Chartered Surveyors’ (Rics) chief economist said: “The latest numbers from the Bank of England demonstrate in the clearest possible way the consequences of the credit crunch for the residential property market.

“Unless the authorities take steps to restart the mortgage market, the likelihood is that there will be more bad news in store for the both the housing market and the retail sector during the latter part of the year.”

The government commissioned a report from former HBOS head Sir James Crosby to find ways of stimulating the mortgage market.

The report, due to be published today, is expected to suggest the government guarantee new mortgages in order to boost confidence in the sector.

Borrowing rates are falling across the industry and the growth in net consumer credit in June of £0.9 billion was also below the six-month average of £1.2 billion.

In contrast, people are saving more, according to the Building Societies Association (BSA).

Building societies achieved record savings inflows of £6.3 billion in the first half compared to just £3.86 billion in the first six months of 2007.

Adrian Coles, director general of the BSA, said: “With an uncertain economic outlook and stock market turbulence, savers are wisely viewing building societies as excellent homes for their money.”