The number of mortgages granted to home buyers fell further last month as prohibitive rates and demands for large deposits put off borrowers.

Some 64,000 loans were approved for those buying or moving home in March, figures from the Bank of England show. This is the lowest figure since comparable records began in 1999.

The figures pre-date the Bank's special liquidity scheme, designed to ease the seizure in the money markets to make it easier for lenders to secure funding.

Lenders, who have struggled to secure funding during the credit crisis, have been increasing their mortgage rates to control the number of applications they receive. They cherry-pick the best applicants by demanding large deposits and tightening lending criteria.

Once they have filled their quota of loans, they raise their rates to deter more borrowers from applying. Halifax last week raised its rates by up to 0.6 per cent, the fourth such move in four weeks.

Alan Clarke, economist at BNP Paribas, said: "The outcome is consistent with the tightening in lending conditions and raising of mortgage rates that has essentially been designed to discourage borrowers — job done."

The continuing drought of cheap mortgage deals is likely to further depress already falling house prices.

Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors, said: "It is improbable that the bottom of the cycle has not yet been reached given the latest announcement that Nationwide is following the lead of other lenders in requiring new borrowers to now put down at least a 10 per cent deposit to secure a mortgage. This is set to intensify the already significant pressure on first-time buyers."

Philip Shaw at Investec said that the gloomy figures would intensify pressure on the Bank's Monetary Policy Committee to cut interest rates next month. “If this trend continues it would tend to point to rate cuts despite the fact that the Monetary Policy Committee is known to be walking the tightrope at the moment,” he said.

Overall mortgage lending fell to £6.9 billion in February. This was the lowest level since March 2005 and well below the £8 billion monthly average for the previous six months.

However there was some good news for borrowers as Royal Bank of Scotland and Natwest announced they would cut their new mortgage rates by between 0.1 and 0.3 per cent from tomorrow. Last week RBS announced its intention to raise £12 billion from shareholders via a rights issue.

Economists are doubtful that the Bank's special liquidity scheme will signal a fall in rates.

Howard Archer, of Global Insight, the economic consultancy, said: "Despite the Bank of England's special liquidity scheme, there are currently few signs that credit conditions are loosening significantly. Consequently, funds for mortgage lending seem likely to remain limited for some time to come while market interest rates are still high."

Vicky Redwood, of Capital Economics, said: "Lenders will remain cautious. And even if the availability of mortgages does increase, the growing expectation of further house price falls might deter new buyers anyway. Accordingly, house prices look set to keep falling."

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