The figures come from the Council of Mortgage Lenders and also show that gross lending in the third quarter of 2010 was an estimated £37.4 billion, a 9% increase from the second quarter and down 4% from the third quarter of last year.
CML director general, Michael Coogan, said he did not see lending volumes increasing substantially by the end of the year.
“Funding pressures on lenders remain and the practical implications of government and public spending cuts are beginning to emerge, with a resulting impact on consumer confidence.
“Despite the pressures on government finances, today’s comprehensive spending review is no time to make further cuts in state support for borrowers in difficulty.
“A concerted effort by borrowers, lenders, the government and money advice agencies has helped to keep mortgage arrears and possessions in check during the current economic downturn. These support measures help contain the wider costs of homelessness, and deliver wider benefits to the government. Now is not the time to weaken the existing safety net.”
Brian Murphy, head of lending at independent mortgage broker, Mortgage Advice Bureau, said: "September's figures are a shocker - down on August, usually the quietest month of the year, down on last September when we were still in the grips of recession, and no sign of the traditional post summer bounce in mortgage activity which doesn't bode well for the rest of the year and early 2011.
"We knew it was going to be a quiet autumn in light of the Spending Review but this is worse than many had feared. Although there are some very competitive products available at lower LTVs, the market as a whole is still very weak and is unlikely to improve in the current economic climate. With buyers as cautious as lenders, this is going to be a long, hard winter and further downward pressure on house prices looks inevitable."
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