Gross mortgage lending saw declines dramatically below the usual seasonal dip, the Council of Mortgage Lenders (CML) says.

It states December saw a 25 per cent drop on November\’s gross levels, well below the six per cent usually expected in the quiet Christmas period.

In total gross lending reached £22.6 billion, its lowest level since May 2005, down from £29.9 billion in November.

But 2007\’s total gross mortgage lending proved the highest ever. Its £362 billion of lending was up five per cent on 2006\’s £345 billion.

Although admitting the credit crunch was continuing to constrain the cost and availability of funds to lenders, CML director general Michael Coogan said there were some grounds for optimism in 2008.

"Looking forward, the recent decline in interbank lending rates and the prospect of further reductions in base rates in 2008 should provide some help to the market, although lending volumes are likely to remain weak for the next few months," he said.

"Overall, despite the funding constraints caused by global conditions, the UK mortgage marketplace remains highly competitive and there will continue to be a range of good deals available to better risk borrowers."

The Royal Institution of Chartered Surveyors\’ (Rics) senior economist Simon Rubinsohn was less cheerful, however, warning a "sharp slowdown" in demand was being experienced.

"The tougher lending environment is likely to be particularly problematic for first-time-buyers," he commented.

"Lower interest rates may provide some help as far as financing a mortgage is concerned but with many lenders scaling back on loan-to-value ratios, the need to find even larger deposits could prove a more powerful obstacle for those hoping to take their the first step on the property ladder."