Mortage lending activity halved last year to the lowest level since 1974, according to the latest data from the Council of Mortgage Lenders (CML).

Only 516,000 house purchase loans were made in 2008, a decline of 49 per cent from 2007.

Trends in mortgages continued to worsen throughout the year, with 32,000 house loans made in December, a fall of 5 per cent on the previous month and the worst showing for six years.

Michael Coogan, the CML director-general, said: "The shortage of mortgage funding and reduction in the number of active lenders has reshaped the mortgage landscape in the space of a year. This low level of transactions is insufficient for the functioning of an efficient market.

"Measures are now in place to seek to restore the flow of funding to the mortgage market, but this will take time to feed through. Further action may still be necessary to increase transactions, stabilise prices and restore confidence."

Remortgaging declined by 26 per cent from November to 40,000 loans in December, suggesting that restrictive lending criteria have meant that for many borrowers the best option was to stay with existing deals.

A tightening in credit criteria, falling house prices and the weakening economy have also continued to curtail activity among first-time buyers.

In December there were 12,100 loans to first-time buyers worth £1.4 billion, the lowest levels since monthly records began in 2002.

First-time buyers typically had a deposit of 22 per cent in December, the highest proportion in 34 years of available data.

The average first-time buyer borrowed 3.1 times their income and spent 17.1 per cent of their income on interest payments.

Tracker mortgage products increased in popularity in 2008 as official rates declined, accounting for 29 per cent of new loans, compared with 16 per cent in 2007.

However, the majority of borrowers continued to opt for certainty in monthly payments: 58 per cent of new loans were fixed-rate mortgages.

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