The mortgage market started the year on the back foot with lending diving by 13 per cent in January.
A total of £9.2bn was advanced during the month, down from £10.6bn in December and the lowest level since February last year, according to the Council of Mortgage Lenders.
The fall is likely to have been partly caused by the severe winter weather during December, which prevented potential buyers from going out house hunting.
But it also reflects the current subdued state of the market, as a combination of high deposits required by lenders and the uncertain outlook for the housing market and the wider economy suppresses demand.
Mortgage advances were five per cent higher in January than they had been in the same month of 2010, the first year-on-year increase since August last year.
But the CML cautioned that lending levels in January last year were distorted by people rushing through purchases in December to beat the end of the stamp duty holiday for lower value properties.
There is little sign of the mortgage market picking up in the near future, with the Bank of England’s Trends in Lending report showing just 41,000 mortgages were approved for house purchase in January.
This was in line with December’s figure, which was the lowest since March 2009 and 11 per cent below the level seen in November.
The CML warned that even if demand for mortgages picked up significantly this year, lending levels were likely to remain constrained, due to the £400bn to £500bn which banks have to repay to public support schemes by the end of 2012.
The group estimates that net lending, which strips out redemptions and repayments, will be just £6bn this year.