The number of loan approvals for home purchase fell 29 per cent in September on a year earlier in a fresh sign the housing market is losing steam.
The British Bankers' Association said approvals - loans agreed but not yet made - tumbled to just 59,905 last month from 85,626 in September 2003.
Approvals are viewed by many economists as a good leading indicator of house price inflation six months out.
"The fact that house prices probably rose too far and too fast has probably stemmed demand on the housing front," said BBA Director of Statistics David Dooks.
"At the moment it would appear the Bank of England's interest rate medicine is working," he added, referring to five quarter point interest rate hikes from the central bank since last November.
The BBA figures are one in a series of clear signs that the once-booming British property market is cooling rapidly.
September marked the fourth consecutive month of monthly falls in the BBA approvals figures although the fact they are not adjusted to reflect seasonal patterns in the housing market leaves them volatile on a month-to-month basis.
Separately, the BBA said underlying mortgage lending was up £4.4 billion last month, the same as in August, which was the weakest since June 2002.
Not all analysts were convinced, however, that lending has slowed as sharply as the figures suggest or that the fall in approvals for house purchase signalled trouble ahead for the property market.
"Approvals are down a lot from their peak. But what would you have expected? The key is the level -- and the level is back to where it was when the (BoE's) MPC started cutting rates back in 2001," said Mr John Butler, economist at HSBC.
HSBC's own index of mortgage activity showed a 7.8 per cent year-on-year rise after a weak August and September.
"After a soft summer, demand for credit appears to have stabilised at high levels. The pessimism that has surrounded the household sector in recent months may have been overdone," Mr Butler said.