The market for new mortgages continued to shrink in September as new home loans fell by almost 60 per cent, but the number of people who avoided paying stamp duty leapt following government changes.

The Council of Mortgage Lenders (CML) said today that 51 per cent of homebuyers avoided paying stamp duty in September, after the Government suspended the tax on homes valued at under £175,000.

However, the number of loans for house purchases was 57 per cent lower than in September 2007.

In total, 35,000 mortgages, worth £5 billion, were granted in September this year, a 15 per cent drop in volume and a 15 per cent fall in value compared with August.

Conditions remain challenging for first-time buyers, with numbers entering the market falling from 28,200 in September last year to 13,400 in the same month this year.

In September, they borrowed an average of £104,500, down from £108,000 in August, and continuing the steady decline in borrowing since the peak of £119,250 in July 2007.

Banks are also turning the screws on first-time buyers by seeking larger deposits, which rose by 16 per cent during September.

Michael Coogan, director general of the CML, said: “While house-purchase activity has reached exceptionally low levels, it is encouraging to see transaction costs lowered for a larger proportion of borrowers.

"The Government should consider what other measures can be brought forward to enable the market to transact more easily."

He said that it was reasonable for banks and building societies to be taking "a prudent approach to risk" in their lending.

He added: "If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending.”

Other figures released today added to the gloom in the property market. The latest survey from the Royal Institution of Chartered Surveyors (RICS) showed that estate agents sold an average of only 10.9 properties per firm in the 12 weeks to the beginning of November, less than one a week, and the lowest level of sales since the series began in 1978.

The September House Price Index from the Department of Communities and Local Government said that house prices dropped 5.1 per cent, compared with September 2007, and by 3 per cent for the three months to September 2008. At the same time, it found that first-time buyers were paying 7.8 per cent less on average for homes than a year ago.

Nationwide, the UK's biggest building society, gave warning that the mortgage lending market would fall by 80 per cent this year.

Shares in Taylor Wimpey, the housebuilder, fell more than 7 per cent in early trading this morning as it reported that its order book had almost halved since this time last year. It said that it saw no recovery for the housing market in the short term.

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