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Mortgage lending fell to £12.4bn in January, a drop of 52% compared with the same month last year, figures showed today.
The Council of Mortgage Lenders (CML) said total gross lending last month was at its lowest level since April 2001 after falling by 8% from December to January.
Last week, the CML said the number of mortgages taken out by people buying a home had reached a 34-year low during 2008. Around half-a-million mortgages were taken out in 2008 compared with 1m in 2007. Meanwhile, government figures published this week showed that house prices fell by 10.2% in 2008.
Meanwhile, figures from the Royal Institution of Chartered Surveyors (Rics) published this week suggested interest from potential buyers is increasing.
Bob Pannell, head of research at the CML, said: "Mortgage lending activity continues to be very weak, and while people are searching eagerly for some signs of recovery it would be unrealistic to expect a meaningful revival in lending in coming months. Even when conditions do improve, gross lending will be one of the later measures to recover."
Howard Archer, chief economist at IHS Global Insight, said the data showed there had been "no change in fortunes" for mortgage lenders in spite of a run of interest rate cuts bringing the Bank of England base rate to a record low.
"It is still very difficult for many people to get a mortgage or find the required larger deposit," he said. "Even if government measures to get banks to step up their lending increasingly take effect, it will clearly take time for confidence to improve and mortgage lending to pick up significantly. These factors are likely to continue to outweigh the beneficial impact of lower mortgage interest rates, particularly as many buyers with small deposits still face mortgage rates of over 6%, if they can actually get a mortgage."
Jason Bolton, a mortgage expert at financial advice website Rubii, agreed that demand from buyers was likely to be stunted by an inability to get a mortgage. The average deal requires a deposit of about 25%, according to moneyexpert.com, leaving many potential buyers unable to meet a lender's requirements.
"As the Rics survey earlier this week revealed, people suspect that now and the months ahead could be the ideal time to buy property," said Bolton. "The issue, as ever, is can prospective buyers get a mortgage and will they commit to a purchase anyway given the febrile state of the economy? The January CML figures would suggest not."
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