The number of mortgages issued in January slumped by nearly half, as UK homebuyers deserted the market after stamp duty relief ended.
The lack of confidence in the market was further laid bare by the level of people remortgaging falling by 15 per cent to 24,000 in January – the lowest level for eight years.
The Council of Mortgage Lenders said that house purchase loans plummeted by 49 per cent to 32,000, worth £4.7bn, in January compared to the previous month. However, this was still 39 per cent up on the abysmally low figure of 23,000 in January 2009.
The data will reinforce concerns that the UK housing market may be set to suffer its own double-dip recession, following the Halifax last week reporting a 1.5 per cent fall in house prices between January and February. Nationwide also reported a 1 per cent fall in house prices in January.
CML attributed the slump to first-time buyers, who are more likely to buy cheaper properties, rushing through purchases before the end of December to take advantage of the stamp duty holiday that ended on New Year's Day on properties priced between £125,000 and £175,000. The number of first-time buyers tumbled by 54 per cent to 11,300, in January, compared with 24,800 in December.
Howard Archer, the chief European economist at Global Insight, said: "It is evident that some housing market activity was brought forward to late 2009 to beat the price threshold for stamp duty on house purchases moving back down from £175,000 to £125,000 at the start of January."
In this stamp duty relief bracket, the number of transactions tumbled by 80 in January to account for just 19 per cent of first-time buyer loans, in sharp contrast to a record 42 per cent in December.
CML also revealed the number of people remortgaging in January fell to its lowest level in its eight years of available data. While this can be partially explained by a lack of confidence among homeowners that house prices will rise, a more significant factor is likely to be that many are not remortgaging when their existing loans expires.
It has been reported that as many as nine out of 10 homeowners, or 270,000 borrowers, are now paying their lender's standard variable rate after their deal runs out, although this can also be explained by banks not offering them suitably attractive deals. In January, homeowners remortgaged only 24,000 loans, worth £3bn, which is a sharp drop on the 45,000, or £6.2bn, a year ago.
CML warned that it expected activity in the housing market to remain subdued ahead of the general election, widely expected to be on 6 May. Michael Coogan, the CML's director general, said: "It was a quiet start to the year. Lending volumes in January were low, but we had predicted this would happen due to the end of the stamp duty holiday distorting December's figures.
"When December and January data are taken together, they show little change in underlying market conditions compared with recent months, with activity still slow but well up on the lows of a year earlier.
"We expect lending over the coming months to remain weak as uncertainty over of the state of the economy and the upcoming election are likely to continue to hold back housing market activity," he added.