A stagnating housing market pushed mortgage lending down to its lowest level for more than three years during August, figures showed yesterday.

A stagnating housing market pushed mortgage lending down to its lowest level for more than three years during August, figures showed yesterday.

Just £21.8bn was advanced during the month, 12% less than during July and a 36% drop compared with August last year, according to the Council of Mortgage Lenders.

The group said the figure was the lowest monthly sum lent since April 2005, and the most depressed level for the traditionally busy month of August since 2002.

The CML blamed the slump on the "exceptionally low" housing market turnover, that has seen transactions drop by around 50% compared with last year.

But it said remortgaging activity had also been lower than anticipated, adding that monthly lending figures looked set to remain subdued in the immediate future.

CML director-general Michael Coogan said: "These figures reflect the heightened uncertainty for both lenders and consumers in the mortgage market at present.

"Lenders are uncertain about future sources of funding and the cost of funding, while consumers are unsure about how much further and for how long house prices will continue to decline."

Meanwhile, house prices are continuing to fall, and there have been signs of a renewed reluctance among banks to lend to each other.

One of the key inter-bank lending rates has risen significantly since the beginning of the week, sparking concern that the recent trend among lenders to slash mortgage rates could be coming to an end.

Howard Archer, chief UK economist at Global Insight, said: "This is yet more grim news on the housing market, with the very low level of mortgage activity being a consequence of the ongoing toxic mix of stretched buyer affordability and very tight lending conditions.

"Widespread expectations that house prices will continue to fall markedly for some time to come is also significantly limiting housing market activity, as is heightened concern over the economic outlook and job prospects.

"Furthermore, the current financial sector turmoil is likely to deepen the pressure on housing market activity through further tightening credit conditions and exerting upward pressure on interest rates."