Mortgage lending slumped to its lowest level in seven-and-a-half years last month, as most banks and building societies continued to turn away customers with deposits of less than 25 per cent.
According to figures from the Council of Mortgage Lenders (CML), new lending totalled just £12.6bn in December, a fall of almost 50 per cent on the same month in 2007, and the lowest monthly total since April 2001. Over the year as a whole, lending totalled £256bn, down 30 per cent on 2007.
Michael Coogan, the director general of the CML, said the poor numbers reflected the fact that lenders had been constrained by a shortage of funding, as well as reduced demand from buyers.
Howard Archer, the chief UK economist at financial consultants Global Insight, said: "Negative factors weighing down on the housing market continue to come from very tight credit conditions, stretched housing affordability in relation to earnings, rising unemployment, muted income growth, widespread expectations that house prices will fall further and an unwillingness of many people to commit to buying a house when the economic outlook and job prospects look so bad."
The Nationwide building society said house prices fell almost 16 per cent last year. Global Insight predicts they will fall 15 per cent in 2009.