According to Bank of England figures that came out yesterday, mortgage approvals for house purchases declined to 48,198 in January, down 17% from December.
The number of remortgages approved, fell to 23,611 from 27,322, while the overall value of loans advanced in January dropped to £10.24 billion, down from £13.53bn the previous month.
Building societies also reported a sharp fall in lending with loans amounting to £1bn in January, compared with £1.8bn in December.
The downturn in mortgage activity has been attributed to January's bad weather and the end of the stamp duty holiday on Hogmanay. The stamp duty has returned to £125,000 on 1 January, having been lifted to £175,000 for a year in an effort to boost the housing market.
According to the Council Mortgage Lenders, lending could fall further when Government support for the market is withdrawn.
Lending levels are likely to have rebounded over the past month, but the improvement could be modest. Housing Market Data Group, Hometrack, said that new buyer registrations increased by just 8.3% in February, compared with an average February jump of 25% between 2004 and 2007.
Ed Stansfield, Chief Property Economist at Capital Economics, said, "The Hometrack data suggests that the underlying level of buyer demand may be lower and more fragile than is sometimes suggested".