Just 30,533 home loans were approved for house purchases in August - about half the level seen in the same month in 2006 and 2007.
Gross mortgage lending of £6.9bn was below the six month rolling average of £7.6bn and reflected continued low levels of activity in the housing market.
Net lending was negative at -£0.3bn but has grown by 0.6% in the year to August.
Mortgage approvals for house purchases showed an upturn from July, though in August were 13% lower than a year ago.
Consumer saving increased as cash ISA inflows continued to be strong leading to a rise in all personal deposits of 5.8% in August.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Weak economic growth in the UK and the ongoing euro zone crisis are fuelling uncertainty and a lack of consumer confidence.
“More borrowers are choosing to overpay on their mortgage and reduce their outstanding debt and borrowing costs where they can, rather than take on new loans.
“Business borrowing also continued to contract as firms attempted to reduce debt or wait for more certain trading conditions.”
Martin Stewart, director of independent mortgage broker, London Money, blamed the Olympics and Paralympics for pouring water on what little activity there was.
He said: “House purchase levels were painfully low. The Funding for Lending scheme has given lenders more confidence, and is driving competition, but that competition is still at lower loan-to-values.”
And he added: "The scheme has had no impact whatsoever on house purchase levels and has failed to ignite consumer confidence.”
"Some lenders, such as Coventry and Newcastle, are being far bolder than others. Coventry is currently offering some competitive rates at 85% LTV while Newcastle has some decent arrangement fee-free deals at 90%.
"But the majority of lenders are still too scared to come out to play. Until there is more diversity at 90% LTV, the market doesn't have a chance.”
Harris added: “It is too early to say what success the government's Funding for Lending Scheme will have, although there is already much debate as to whether it is helping out those borrowers who really need assistance. We need cheaper mortgages at higher loan-to-values. Will we get them? Only time will tell.”
