Lending reached an estimated £12.6 billion in December, down 11% from £14.2 billion in November and 47% on December 2008, according to the Council of Mortgage Lenders.
Lending totalled £256.4 billion over 2008 as a whole, down 30% on £363.7 billion in 2007 and the lowest annual figure since 2002, the figures also show.
Recent mortgage approval figures from the Bank of England indicate lending will decline further in the coming months, so improvements in lending are unlikely to be seen in completion levels until the second half of the year at the earliest, said the organisation which has 98% of residential lenders as members.
'December is typically a quiet month in the mortgage market, on top of which the market has been constrained by a shortage of funding and reduced demand,' said Michael Coogan, CML director general.
He welcomed the latest measures announced this week by the government to support the financial system and invigorate new lending. 'The next challenge is to settle the detailed requirements for each measure, so that they can be used by as wide a range of market participants as possible, and as soon as possible,' he explained.
'A mortgage market solely funded by a few large banks and building societies would be unlikely to have the capacity to match future consumer borrowing demand, or be as competitive in the long term as the UK market has been before the credit crunch,' said Coogan.
'Increasing the range of active lenders and funding capacity in the market overall is a vital next step. Further measures targeted at the housing market are likely to be needed to supplement yesterday's welcome intervention to address liquidity and capital concerns,' he added.
Peter Bolton King, chief executive of the National Association of Estate Agents, said that although the lending figures were disappointing NAEA members have reported a slight upturn in activity towards the end of December, with both buyers and sellers showing an increase in interest and early indications are that the market has picked up significantly in January.
'If there is any chance that these much discussed greens shoots of recovery are to take root, it is up to Mervyn King, governor of the Bank of England, to live up to his promise to do everything possible to bring fluidity back to the market,' he said.
'We can confirm that there are bargains to be had in the market at the moment, but if the banks won't increase lending this upturn in the market will be short-lived and consumer hope will be dashed again,' he added.
