The flow of money into Britain's housing market is rapidly dwindling to a trickle, according to figures from the Council of Mortgage Lenders (CML), which this morning reported that Britons borrowed £21.8 billion in August to buy homes, 12 per cent less than in the previous month.

The tightening terms imposed by banks on homebuyers is deterring borrowing. The combination of dear money and falling property values is crushing the market for home loans and, more worrying, the decline in lending is speeding up, according to the CML figures.

These show that the credit crunch began to crimp mortgage borrowing in the early spring: the banks injected £26.2 billion into homes in April followed by just £24.5 billion in May.

In June, Britons borrowed £23.6 billion and lending increased slightly in July to £24.7 billion, only to collapse in August.

The CML anticipates that exceptionally low housing market turnover and less remortgaging activity will keep monthly lending figures subdued.

Borrowing to buy homes tends to peak in summer and the August slump is therefore testimony to the lack of confidence among households in their financial security. Last month's borrowing total represents a fall of 36 per cent against August 2007 and it is the lowest August figure since 2002.

Typically, house purchases pick up in the spring as the weather improves and mortgage borrowing follows the trend.

The CML figures reflect the date of completion of a house purchase when the money is transferred and, in a normal year, mortgage lending volumes will increase and peak in the middle of the summer following a spate of late spring transactions.

In each of the past three years, the August borrowing figure has been higher than the July total. However, this year there was a steep drop from £24.7 billion to £21.8 billion.

MIchael Coogan, director general of the CML, said: “These figures reflect the heightened uncertainty for both lenders and consumers in the mortgage market at present. Lenders are uncertain about future sources of funding and the cost of funding, while consumers are unsure about how much further and for how long house prices will continue to decline."

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