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Mortgage lending fell to an eight-year low of £9.9 billion in February, from £11.7 billion the previous month.

The Council of Mortgage Lenders data is in line with expectations, although it is greater than the 3 to 4 per cent fall that is usually seen between January and February.

The CML said the ability of banks and building societies to lend is being reduced as customers shift savings to government-backed National Savings and Investments.

Director general Michael Coogan said: ‘The are now fewer active lenders in the market, but the government wants them to lend more. At the same time, the government’s own savings institution is sucking away the funds that would enable them to do so.’

Liberal Democrat housing spokeswoman Sarah Teather said: ‘Ministers should now allow councils to borrow money to buy up cheap land and empty properties to save construction jobs and rebuild Britain’s dwindling stock of social housing.’