There were 516,000 house purchase loans in 2008, a decline of 49%, according to the Council of Mortgage Lenders whose members undertake around 98% of residential lending.
It shows that the property economic crisis has reshaped the mortgage landscape and the market is not able to function efficiently, the organisation is warning.
'The shortage of mortgage funding and reduction in the number of active lenders has reshaped the mortgage landscape in the space of a year. This low level of transactions is insufficient for the functioning of an efficient market,' said Michael Coogan, CML director general.
'Measures are now in place to seek to restore the flow of funding to the mortgage market, but this will take time to feed through. Further action may still be necessary to increase transactions, stabilise prices and restore confidence,' he added.
Its figures show that there were 32,000 house purchase loans in December 2008, a decline of 5% from November and the lowest level since monthly records began in 2002.
Remortgaging declined by 26% from November to 40,000 loans in December, as the combination of attractive reversion rates and more restrictive lending criteria meant that for many borrowers the best option was to stay with existing deals, its report says.
The tightening in credit criteria, falling house prices, and the weakening economy have also restricted the number of first time buyers entering the market. In December, there were 12,100 loans to first-time buyers worth £1.4 billion, the lowest levels since monthly records began in 2002.
First-time buyers typically had a deposit of 22% in December, the highest proportion in 34 years of available data. The average first-time buyer borrowed 3.1 times their income and spent 17.1% of their income on interest payments.
There were 20,000 loans to home movers in December, worth £3 billion. Home movers typically borrowed 70% of the property's value and 2.75 times their income. Interest payments typically consumed 13.2% of home movers' income in December compared with 17.9% a year earlier.
Tracker mortgage products increased in popularity in 2008 as official rates declined, accounting for 29% of new loans, compared with 16% in 2007. However, the majority of borrowers continued to prioritise certainty over monthly payments, as 58% of new loans were fixed rate mortgages, albeit down from 73% in 2007.
'The shortage of mortgage funding and reduction in the number of active lenders has reshaped the mortgage landscape in the space of a year. This low level of transactions is insufficient for the functioning of an efficient market,' said Michael Coogan, CML director general.
'Measures are now in place to seek to restore the flow of funding to the mortgage market, but this will take time to feed through. Further action may still be necessary to increase transactions, stabilise prices and restore confidence,' he added.
