The British Bankers' Association (BBA) said its members approved just 21,118 new home loans in June, down from 27,499 in May.

The figures were also 67% lower than in June last year.

The collapse in house sales and fall in house prices has been caused by the mortgage drought, which was triggered by the credit crunch in the banking system.

The BBA said the number of homes sold in 2008 was likely to be the lowest since the recession at the start of the previous decade.

"Another record low number of mortgages approved by the banks for house purchase means that the whole market is likely to be at its least active since the early 1990's," said the BBA's statistics director, David Dooks.

House sales collapse in 2008

The figures for mortgages approved, but not yet actually lent, are considered a very good indicator of near-term trends in the UK mortgage market.

As such, they suggest that the collapse in house sales is likely to continue for the rest of the year.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said: "The continuing lack of availability of mortgage finance is proving a major drag on the level of property transactions and is increasingly being felt in the real economy."

"The modest cuts in the costs of borrowing seen over the past few weeks will unfortunately provide little relief for first-time buyers," he added.