The Council of Mortgage Lenders says this decline is bigger than the 3% to 4% usually experienced between January and February.
But the trade body adds that February’s lending figure is still in line with its earlier forecast of £145bn gross mortgage lending for the year.
Michael Coogan, director-general of the CML, says savings are now the predominant source of mortgage funding, but that lenders are losing out to National Savings and Investments.
He says: “This is yet another example of fractured policy.
“There are now fewer active lenders in the market, but the government wants them to lend more.
“At the same time, the government’s own savings institution is sucking away the funds that would enable them to do so.”