The Bank said after eight consecutive quarters of growth the availability of loans for house purchase tumbled over the third quarter of the year.

It found lenders had faced operational issues following the implementation of the Mortgage Market Review while concerns had mounted over the future of the housing market, lessening appetite.

Other lenders said the income capping recommendations made by the Financial Policy Committee had caused them to tighten criteria and that a greater percentage of applications were rejected over the third quarter than previously.

However, most lenders expected competition to increase during the last three months of the year.

The first-time buyer market also took a step back with banks and building societies less willing to lend above 90% loan-to-value than previously.

Demand from borrowers for house purchase and remortgage lending also fell significantly during the third quarter although buy-to-let demand increased compared to the previous three months.

The remortgage market is expected to ‘increase significantly’ in Q4, the survey said.

Rob Wood, chief UK economist at Berenberg Bank, said: “Banks tightened household credit availability in the third quarter by the most since 2008, partially in response to tougher mortgage rules introduced with the so-called Mortgage Market Review. That tightening has understandably weighed on the housing market over the past six months

“Banks report that households’ desire to borrow also fell in Q3. But with credit set to become easier in the fourth quarter, lenders also expect demand for those funds to increase. All that being said, banks are still planning to be more cautious than earlier this year in ways that could continue to particularly impact the London market.”