A total of 70,756 new loans were approved in July, down from 88,859 in June and almost 19,000 lower than in the same month last year.

In addition, the number of remortgages were nearly 10% down on June.

As a result, a leading economist warned that a price correction in the UK housing market could be underway.

"If you were not worried about the potential for an abrupt correction in UK house prices before today, you should be now," Malcolm Barr, JP Morgan Chase UK economist, said.

Slowdown

Most recent housing market surveys have shown that house price inflation has been slowing in the wake of five interest rate rises from the Bank of England since November.

Recently, the Bank indicated that it believed higher interest rates could be now slowing the UK property market.

"I'm surprised by how much they (new approvals) have fallen in one month and I think this will support the Bank of England's claim that the housing market is slowing," HSBC UK economist John Butler said.

However, last week the Council of Mortgage Lenders (CML) revealed that total mortgage lending rose by �29.2bn in July, up from �28.2bn the previous month - fuelled by a record �14.7bn in loans for house purchases.

In addition, the CML revealed that there were 131,000 loans for house purchases in July, the highest total since August 2002.

The CML figures are considered to be more complete than the BBA's.

While the BBA survey applies solely to the banking sector, the CML includes data from all of its UK members which include both banks and building societies.

The Bank of England (BOE) will release its UK borrowing figures on 31 August.