The decline in property lending was spread evenly between first time buyers and home movers, the figures from the Council of Mortgage Lenders shows.
But conditions of entry on the property ladder for first time buyers are tougher than ever before. Lending criteria were tightened further in response to the worsening economy and falling property prices, creating a barrier for many first time buyers wishing to enter the market. The typical first time buyer deposit in January was 24%, the largest amount on record.
However, at the same time lower interest rates and income multiples have made payments easier for those able to obtain credit. First time buyers typically borrowed three times their income in January and the average loan was £97,000. The typical first time buyer spent 15.8% of income on mortgage interest payments, the lowest proportion since July 2004.
'The current withdrawal of many specialist, small and foreign lenders from new lending has created a huge gap in the capacity to fund mortgages to match consumer demand and this is continuing in 2009,' said Michael Coogan, director general of the CML whose members undertake around 98% of mortgage lending in the UK.
'People want to know why lenders are not lending. They are, but government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year,' he added.
The data also shows that remortgaging activity from £5.6 million in December to £6 billion but despite the modest increase month on month, the CML expects demand for remortgaging to remain weak in 2009 as the most attractive option for many borrowers will be to stay on reversion rates in a low interest rate environment.
Tracker mortgages increased in popularity as the average tracker rate fell from 4.26% to 3.64% against a backdrop of lower official rates. For the first time since March 2005 the majority of new lending has not been on fixed rates.
