The amount of money homeowners are borrowing on their houses has slumped by 64 per cent in the first quarter to a seven-year low as banks continue to withdraw cheap mortgage deals.

Housing equity withdrawal, where a homeowner increases the size of his/her mortgage and uses the proceeds to finance consumer spending, fell from £13.9 billion in the first quarter of 2007 to £5 billion this year.

The rate also slumped on the fourth quarter of 2007 when housing equity withdrawal topped £7.4 billion. Today's £5 billion figure is the lowest amount of money homeowners have raised since the second quarter of 2001.

Howard Archer, chief UK and European economist at Global Insight, said: "This will add to the mounting pressure on consumer spending already coming from modest disposable income growth, rising utility bills, elevated food prices, tighter lending conditions, higher mortgage rates, increased debt levels, tighter and, now, rising unemployment.

"This reinforces belief that we are in for an extended period of consumer retrenchment."

Yesterday, it emerged that the average value of a UK home had fallen by 0.9 per cent in June on top of a record 2.5 per cent fall in May, according to the Nationwide Building Society.

Mortgage approvals in May also plunged, down 56 per cent on the same month last year to a new low of 27,986.

Banks have recently stepped up withdrawing favourable mortgage deals from the market.

Woolwich, Barclays' mortgage lending arm, recently took all its two-year fixed rates off the market while Nationwide ramped up rates by up to half a percentage point for the second time in a fortnight.

Nationwide, the UK's biggest building society blamed "sharp increases in money market rates", and rises by rival lenders for its latest round of changes. It hinted that more rate changes were on the cards as long as the market remains volatile.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts