Mortgage lending in January slumped to less than half the level it had been a year earlier, figures showed today.
A total of £12.4 billion was advanced by the major mortgage lenders during the month, 8 per cent less than in December and 52 per cent lower than in January 2008, according to the Council of Mortgage Lenders.
The group said there was typically a slight decline in lending levels between December and January, although it added that the figure was the lowest monthly level recorded since April 2001.
The figure will disappoint commentators who had interpreted a slight increase in the number of mortgages approved for house purchase during December as a sign that activity in the market had bottomed out.
Anecdotal evidence from estate agents suggests there is increased interest in the housing market on the back of recent interest rate cuts and the steep property price falls already seen.
The Royal Institution of Chartered Surveyors has reported a rise in new buyer inquiries for three consecutive months, with demand being driven by existing homeowners looking to move.
But today's CML figures show that this increased interest has not yet translated into transactions.
It is also feared many people who now want to buy will continue to be frustrated by the strict lending criteria being employed by lenders, with nearly a quarter of mortgages needing a 40% deposit.
The CML estimates net mortgage lending, which strips out redemptions and repayments, will be minus £25 billion this year - meaning homeowners will repay £25 billion more than they borrow - as the mortgage drought continues.
Bob Pannell, CML head of research, 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 UK and European economist at IHS Global Insight, said the CML data indicated that the new year brought no change of fortunes for mortgage activity.
He said: "While latest survey evidence indicates that buyer inquiries are now picking up significantly as people are attracted by lower house prices and the Bank of England slashing interest rates, we are sceptical that this will lead to a marked up in actual sales anytime soon.
"We certainly expect house prices to continue to fall for some considerable time to come."