Mortgage approvals for house purchases dived by 20% during May as the credit crunch continued to "throttle" the mortgage market, figures have shown.

The number of loans approved for people buying a home fell to a record low of 27,968 during the month, 20% fewer than in April and 56% down on the level for May last year, according to the British Bankers' Association.

The group warned that the figures suggested the subdued lending picture would continue as consumers struggle to raise the finance they need in the face of the credit crunch.

The data came as the average cost of a two-year fixed rate mortgage broke through the 7% barrier to stand at 7.02%, its highest level since February 1997.

Meanwhile, the recent flurry of lenders hiking rates continued, with Barclays' lending arm the Woolwich raising the cost of some of its residential mortgage rates by between 0.3% and 0.4%, while its five-year fixed rate buy-to-let deal has been increased by 0.6%.

The latest round of mortgage rate rises has been sparked by steep increases in swap rates, upon which fixed-rate deals are based, following speculation that the next movement in the Bank of England base rate could be up.

Swap rates hit 6.52% last week, causing lenders, including Halifax and Lloyds TSB, to hike their mortgage rates.

The increases are further bad news for the already beleaguered housing market, with commentators warning that the ongoing problems in the mortgage market could make the downturn more prolonged and severe.

The data comes the day after Government figures showed that property transactions had slumped by 13% during May to be 37% lower than 12 months earlier, and today's low approvals figures suggest sales levels could fall further still, leading to further price drops.

Howard Archer, chief UK and European economist at Global Insight, said: "More housing market data, more very worrying news that heighten concern that we are in for an extended, deep correction in the housing market.

"The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions. Very low housing market activity seems certain to feed through to further depress already markedly weakening house prices."