The figures released by the Bank of England highlight the sharp slump in mortgage lending in the course of the past year as the credit crunch has forced banks and building societies to ration their lending to only their most creditworthy borrowers with large deposits.

Redemptions from customers who were paying off their loans outstripped new lending by £79m.

The collapse in business by specialist lenders such as those specialising in sub-prime mortgages has fallen with just 2,000 mortgages against 32,000 in July 2007.

By contrast building societies saw the money saved with them rise by £1.435 billion in July 2008 compared to £723 million in July last year.