The latest Council of Mortgage Lender (CML) figures show loans for house purchases fell 8.7 per cent in July to 94,000, following an annual fall in June of 8.4 per cent.
Remortgaging levels also fell to 92,000 loans worth £11.5 billion.
The CML data reveals that mortgages to first-time buyers fell by seven per cent to 32,400 loans and by value by four per cent to £4.4 billion. The income multiple for the average first-time buyer is now at 3.39 - from 3.23 a year ago.
Michael Coogan, CML Director General, explained the slowdown in lending for June and July has now occurred for the third year in a row, but a wider slowing could be emerging.
"The long-anticipated slowdown in the housing and mortgage markets may now be beginning to materialise," he said.
"Both market conditions and sentiment are coming off the boil, and affordability is ever more stretched, but consumers should not expect any immediate easing in the financial pressures they face."
Commenting on the figures, Global Insight chief UK economist Howard Archer said that he expected housing demand to be "increasingly pressurised" by the affordability pressures caused by higher interest rates, modest real disposable income growth and elevated house prices.
"Reflecting anticipated slowing demand, we expect house price growth to trend gradually and erratically lower over the coming months and then settle down into an extended period of overall very modest rises," he said.
"However, it currently seems unlikely that house prices will slow sharply, given that a lack of supply means that vendors in many areas still have some pricing power. Also significantly, few vendors are currently having to sell for 'distressed' reasons, so can afford to delay selling in the hope of eventually achieving a price near to what they are looking for."
Mr Archer added that he expected a substantial number of homeowners to see mortgage bills markedly rising this autumn as the cheap fixed rates that they took out two years ago expire.
"Meanwhile, the higher money market interest rates resulting from the current financial market turmoil means that some mortgage rates are set to rise. In addition, concerns about subprime mortgages mean that lenders are likely to become much more careful in who they lend to and will charge higher rates for riskier borrowers."
He concluded that this too would have a dampening effect on the housing market.