New figures show that mortgage lending last month hit its lowest September level in seven years, with experts claiming the slump is due to changes in lending criteria sparked by the global credit crunch.

The number of house purchase approvals dropped by 27% in September to 52,685, from 72,155 last year, according to data released by the British Bankers' Association (BBA).

Underlying net mortgage lending also fell to £5.8bn in September from £6.1bn in August, a sign that the housing market is being hit by the recent volatility in credit markets.

Global Insight economist Howard Archer believes that potential buyers are finding it increasingly difficult to secure funding after lenders began to tighten their criteria for borrowers.

He said that this tougher approach, coupled with the impact of five interest rate hikes since last August, is putting the brakes on the property market.

He said: "Slowing housing demand is expected to increasingly feed through to dampen house prices over the coming months.

"Indeed there is undeniably a very real risk that the housing market could see a sharp correction."

The International Monetary Fund recently suggested that the property market in Britain is in danger of mirroring that of America, and that the sector may experience a slump after the recent boom left house prices significantly over-valued.

Meanwhile, the latest report from Ernst & Young's influential Item Club has warned that house prices may stall next year, although it said the market is unlikely to see a crash.

Mr Archer said the lack of housing supply in the UK will help to limit falls, with an expected cut in interest rates next year also set to provide a boost.

But he added: "The risk of a housing slump will increase if the credit crunch is prolonged."

The BBA figures provide further evidence that house prices are cooling, with the average mortgage loan standing at £152,300 in September, down 1% on August.

The average mortgage value has been steadily dropping since June and is now back below the level seen in April.

Copyright © PA Business 2007