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Mortgage lending doubled during December, but the figure was only a quarter of the level seen 12 months earlier, the Bank of England said today.
Net lending, which strips out redemptions and repayments, was £1.9bn during the month – up from November's depressed level of £834m. But the figure was well down on lending levels in December 2007 when net lending totalled £7.72bn.
The number of mortgages approved for house purchases also increased – up from November's record low of 27,000 to 31,000.
Lending for new purchases slumped in 2008, with the number of approvals for homebuyers falling by 58% to 519,000 from 1,250,000 in 2007.
Lenders have warned that the housing market is unlikely to recover this year, despite the government's suggestions that lending should be returned to 2007 levels.
Uncertainty in the job market and fears that house prices will continue to fall are deterring some buyers from entering the market, while others are struggling to meet the stricter criteria now imposed by lenders.
Those who already have loans benefited from heavy interest rate cuts in the final three months of last year, which could be behind the fall in remortgages in December revealed by the Bank's figures.
It said the number of loans approved for borrowers looking to switch lender dropped to 36,000 in December from 41,000 the previous month, and a previous six-month average of 66,000.
Howard Archer, chief UK economist at IHS Global Insight, said: "The level of mortgage approvals was still the second lowest since comparable records began in 1993, and followed a particularly dismal performance in November. At this stage, we would infer no more than mortgage activity may be stabilising at an extremely low level."
Andrew Montlake, a partner with independent mortgage broker Cobalt Capital, said borrowers were still struggling to raise loans.
"The fact remains that the mortgage market has gone from one extreme to the other. We've gone from over-exuberance to over-reaction and, in many cases, lenders have still got the shutters firmly down," he said.
The Bank also reported a slowdown in consumer credit in December as consumers reined in their borrowing on credit cards and loans.
Net lending through these channels increased by £0.3bn over the month, compared with a £0.8bn increase in November. Credit card customers repaid £0.1bn of their debts, but loans and other advances increased by £0.4bn.
The figures bear out those published earlier this week by the British Bankers' Association, which showed the traditional pre-Christmas borrowing binge had been replaced by a focus on saving.
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