Mortgage lending was “disappointingly lacklustre” in September, sliding by 10% compared with the previous month when borrowing for home buyers reached a two-year high, lenders said today.
The Council of Mortgage Lenders (CML) said lending totalled £11.6 billion last month, which is also 15% lower than a year ago, despite a recent boost to the availability of mortgage deals.
An £80 billion funding for lending scheme was launched by the Government at the beginning of August to kick-start the flow of credit, which has resulted in an increase in the choice of mortgages.
But the CML said there have been recent signs of demand softening and last month's fall appears to reflect a drop off in housing market activity.
Lenders have also toughened their borrowing criteria in recent months and much of the increase in mortgage availability so far has been concentrated around people with deposits of 20% or more.
The figures were released on the same day as the Bank of England's latest trends in lending report, which said that mortgage approvals for home buyers fell slightly in the three months to August, compared with the previous quarter.
The Bank suggested it could be towards the end of the year before the effects of recent improvements to lenders' mortgage ranges show up in any mortgage lending figures, due to the typical lag of two to four months between mortgage approvals and sales taking place.
The CML's latest figures also estimated that gross lending for the third quarter of 2012 was £37.3 billion, a 5% drop on the same period last year but 8% up on the second quarter of this year.
CML chief economist Bob Pannell said the "disappointingly lacklustre outturn" for September appears to reflect a drop in the number of people looking to buy homes, while remortgaging levels also remain weak.
He said: "There have been hints of demand softening over recent months, but monthly patterns may have been distorted by the Olympics.
"House purchase demand failed to lift significantly in the third quarter, despite much better mortgage availability.
"Remortgage activity continued to languish, in contrast to relatively strong levels a year ago."
Mr Pannell said the CML's latest figures give an "uncertain backdrop" for trying to predict the likely long-term impact of the scheme.
He said: "The big question over the coming months will be the extent to which a greater availability of funds attracts greater demand, and in what parts of the market."