The number of new home loans granted during May plunged by 44 per cent compared with last year while remortgaging activity declined as home owners shunned rocketing arrangement fees.

According to the Council of Mortgage Lenders (CML), while mortgage lending volumes rose slightly by 4 per cent between April and May, on an annual basis the number nearly halved as home loan rates continued to rise.

The remortgaging market also declined, falling 14 per cent between April and May and by 23 per cent on the same month last year.

The CML said the fall in remortgaging activity may be due to the rising numbers of homeowners choosing to move to their lender's standard variable rate rather than risk paying a new arrangement fee.

Five years ago a typical arrangement fee was about £299, but some lenders have increased the cost as the UK mortgage market has worsened. An arrangement fee of more than £2,000 is now not unusual.

Earlier this year, Halifax, the UK's largest mortgage lender, raised the arrangement fee on its 2-year fixed-rate deal from £499 to £1,499.

It also emerged today that house prices fell in May by 0.3 per cent, according to figures from the Department of Communities and Local Government (DCLG).

The average house price fell from £218,875 in April to £218,151, which the DCLG said is 3.7 per cent higher than in May last year.

However, the DCLG said the 3.7 per cent rise in the lowest annual increase for 26 months.

Experts also point out that while Nationwide's house prices survey for June shows a 6.3 per cent decline in house prices, it is based on mortgage approvals, whereas DCLG's data is based on mortgage completions.

It can take between two and three months between initial mortgage approval and the granting of a home loan when funds are transferred.

Howard Archer, chief UK and European economist at Global Insight, said:" The DCLG data do little to dilute the serious concerns over the housing market, even though it shows house prices are still rising year-on-year.

"Severe downward pressure on house prices continues to come from very weak housing market activity, elevated affordability pressures on potential house buyers and very tight credit conditions."

Money Central: the latest house price forecasts, region by region

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