The Council of Mortgage Lenders said just 46,500 borrowers took out home loans to buy a new property in March, around half the figure for the same month last year. The total number of new mortgages approved for home loans in the first three months of 2008 was 142,000, the lowest total since the first quarter of 1975.

Michael Coogan, director-general of the CML, said there was no prospect of any immediate improvement in the property market. "House purchase transaction volumes will continue to deteriorate in the coming months as recent approvals data from the Bank of England has shown," he said.

Mr Coogan said lenders were continuing to find it difficult to source funding for mortgage advances, warning that the £50bn liquidity package announced last month by the Bank of England would take time to feed through into the credit markets. In fact, Libor, the interest rate at which lenders borrow money, rose marginally yesterday.

Nationwide Building Society, Britain's second biggest lender, did cut the cost of some fixed-rate deals yesterday, but the CML said credit markets remained constrained. The number of loans to first-time buyers fell to 17,600 in March, the lowest monthly figure since records began in 2002.

The CML's warning came as Redrow, the housebuilder, said the market had deteriorated markedly since Easter. Neil Fitzsimmons, the company's chief executive, said around 20 per cent of buyers had been cancelling purchases in the first few months of this year, but that withdrawals had increased significantly in recent months.

"The market conditions we are experiencing are largely being driven by mortgage availability," Mr Fitzsimmons said. "It is difficult to assess how long the sharp reduction in sales activity will persist or the extent to which house prices will be affected."

Redrow said that sales so far this year were 26.5 per cent down on 2007, with the company's reservations in the second half of its financial year down by almost 50 per cent on the previous year.

Roger Williams, from accountancy firm Wilkins Kennedy, warned the slowdown now threatened to cause major problems for public finances, with the Treasury's projections for its take on stamp duty this year likely to prove over-optimistic.

At the end of April, the Government said stamp duty receipts for the 2007-08 tax year had totalled £14.1bn, some £1bn lower than it had been forecasting less than two weeks earlier. Ministers now expect to make £13.5bn from stamp duty in the 2008-09 tax year.

"A £600m year-on-year fall is a huge slump in stamp duty receipts, but as the credit crisis deepens and mortgage approvals continue to fall, even those figures must now be in serious doubt," Mr Williams warned.