THE housing market may be heading for a double dip as mortgage lending slumped, while thousands of people who bought a home at the peak of the market could remain trapped in negative equity until 2014.

Figures from the Bank of England showed that mortgage advances last month dropped to their fourth lowest level since records began, once redemption and repayments were taken into account.

Lending levels showed little sign of picking up, with only 48,722 home loans approved in the UK for house purchase during the month, up only slightly on June’s figure and consistent with house price falls.

Andrew Goodwin, senior economic advisor to the Ernst and Young ITEM Club, said: ‘‘The figures provide further confirmation that the housing market is heading for a double dip, with net mortgage lending pretty much flat and the number of mortgage approvals remaining very low.

‘‘These figures tend to be well correlated with prices and they point to falling prices over the second half of this year, particularly now that the supply shortages of the early part of the year have eased.’’ Nationwide reported a 0.5 per cent price fall during July, while Halifax reported falls for four of the first seven months of the year.

Mortgage lending has remained subdued.

The Council of Mortgage Lenders recently revised down its forecast for net lending during this year to £12bn, compared with its previous prediction of £15bn.

The housing market is being held back by caution among potential buyers, as people worry about the state of the economy.

Data from the National Housing Federation added to the gloomy outlook for the housing market, which has failed to produce its traditional summer bounce.

David Orr, the federation’s chief executive, said: “For those who bought at the peak of the housing boom, there is a strong possibility they will have to wait another four years before their home is worth what they paid for it.”

House prices are expected to continue their downward trend, but economists are divided over how far values will fall.

Mr Goodwin thinks prices will decrease by three per cent to five per cent in the coming 12 months, before the market stabilises in the middle of next year, as the previously seen shortage of properties reasserts itself, offering some support to the market.

But Paul Diggle, property economist at Capital Economics, is more pessimistic, expecting prices to end the year five per cent lower than they started the year, with further falls of ten per cent likely in 2011 and 2012.