The slump is the highest ever decline since CML records began in 1994.

Gross mortgage lending was approximately £17.7billion last month, bringing the estimated total lending for the third quarter down to £62billion, 16 per cent less than the second quarter, and 37 per cent less than the same quarter in 2007.

The CML explained that between August and September a seasonal fall in mortgage lending is expected, but it highlighted the fact that September experienced the lowest lending figure of any month since January 2005, and the lowest figure for September since 2001.

“The mortgage market is open for business. But weakening consumer demand and ongoing funding constraints will dampen monthly lending figures for the rest of this year and into the first quarter of 2009.” said CML director general, Michael Coogan.

He continued to say that the CML expects gross lending for 2008 to be around £255billion, down from £363billion in 2007, and net lending is predicted to be an estimated £40billion in 2008, down from £108billion last year. Tight lending conditions and a continuing shortage of liquidity are still taking their toll on mortgage approvals, which have been dropping steadily since the credit crisis broke last summer.

The difficult lending conditions and soaring mortgage rates have deterred would-be first time buyers, many of whom are turning to rented accommodation until their prospects improve.

Last year first time buyers could still get a mortgage for 125 per cent of their home’s value, but they have been largely priced out of the market as lenders lower their loan to value ratios, making it impossible or expensive for borrowers without a significant deposit to secure a deal.

© Fair Investment Company Ltd