The number of loans for house purchase declined to 46,500 in March, down 1% from 47,200 in February, the CML said. The continued decline in lending for house purchase has been partly attributed to the shortage of funding in the mortgage market, which is itself due to credit market conditions.

Remortgaging activity increased in the first quarter of 2008 to £33.3bn, accounting for 44% of gross lending, up from 35% in the fourth quarter of 2007 and the marking the highest market share in three years. The CML said that this is likely to be driven by the large numbers of borrowers exiting short-term fixed-rate mortgages.

The average first-time buyer borrowed 89% of the property’s value and 3.35 times their income in the first quarter of 2008, down from 90% and up from 3.32 in the first quarter of 2007.

CML director general, Michael Coogan said: “House purchase transaction volumes will continue to deteriorate in the coming months as recent approvals data from the Bank of England has shown.

“Since the introduction of the Special Liquidity Scheme, there has been a slight improvement in credit market conditions, with LIBOR [London Interbank Offered Rate – the rate at which banks loan money to each other] moving in a more helpful direction. But LIBOR still remains high relative to the Base Rate and any improvement in credit market conditions will take time to feed through into the mortgage market.”