A reduction in available funding as a result of problems with credit markets could lead to a reduced supply of mortgages, a trade body has said.

But the Council of Mortgage Lenders (CML) believes moves by the Bank of England to support liquidity in the interbank lending market may help to restore the supply more quickly than would otherwise have been the case.

The CML said it is too soon to say with accuracy what lending volumes during September will show, but initial indications suggest the market remains "robust".

High levels of defaults in the US sub-prime mortgage market, which lends to people who would be turned down by mainstream banks, has triggered a global credit crisis, causing banks to stop lending to each other over fears of exposure to the US losses.

This lack of liquidity triggered the crisis at Northern Rock, which had to agree emergency funding from the Bank of England after the credit market effectively dried up.

The CML said that during September a number of lenders withdrew mortgages, changed their lending criteria and altered their rates.

But it added that while interest rates on some products increased, lenders had also reduced the cost of fixed-rate mortgages.

The group also reported that total mortgage lending fell by 6% during August to £32.2bn, the lowest figure since May this year, and 3% below the amount advanced during August last year.

Michael Coogan, director-general of the CML, said: "Lending fell slightly in August, but was still at very high levels.

"We see no obvious decline in consumer demand, although some decrease in the supply of lending is being experienced in the short term as a result of the problems lenders face in raising wholesale funding.

"The events of the past week have shown us how very quickly situations can change. Even after the good news on inflation falling back, the Federal Reserve's rate cut, and the Bank of England's support for three-month funding, it is not a given that the Bank will follow suit on cutting rates."

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