Gross mortgage lending fell £1.9bn from £25.9bn in January to an estimated £24bn in February, says the Council of Mortgage Lenders.
The drop also represents a 6% fall in lending from £25.6bn in February 2007.
The CML says the Bank of England approvals data for January showed subdued levels of house purchase activity and a sharp rise in remortgage approvals, which is likely to be supporting current lending volumes.
Michael Coogan, director general of the CML, says: “We have entered a substantially slower phase in the housing market and there will be ongoing problems in the mortgage funding markets unless the Bank of England makes new, broader based attempts to improve levels of liquidity in the UK.”
He says demand for mortgages remains strong but cannot be fully met from existing funding.
Coogan adds: “This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity.
“As credit conditions change markedly from day-to-day, lenders will continue to rapidly adapt their products and pricing to match. This is a vital response to the uncertain conditions.”