The effects of the credit crunch were being felt once again throughout August, with a 64% drop in the number of approved applicants compared to the same time last year.
The British Bankers' Association (BBA) said that just 21,086 mortgages had been approved for house purchases in August, down from 58,564 in the same month last year.
The figure is the lowest since records began in September 1997.
The Association, which represents two thirds of mortgage lenders in the UK, said that falling property prices and the state of the economy would continue to have an impact.
Consumer credit rose by £0.4bn in the same period as Britons battle with the increasing cost of living.
"Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government's announcement on stamp duty all suppressed or delayed demand in August and will continue having an impact in the months ahead," said BBA statistics director David Dooks.
Approvals for remortgaging in August were 28% lower than last year, at 47,765. This was the lowest level since early 2001, the BBA said.
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