The Council of Mortgage Lenders (CML) says lending declined 19 per cent to an estimated £10.2 million in April, down from £12.6m in March.
Economists warned that the eurozone crisis could lead to a period of “near paralysis” in the mortgage market as UK lenders absorb the fallout from Europe.
CML chief economist Bob Pannell said: “Mortgage lending activity has been relatively buoyant in recent months, with stronger lending for house purchase underpinning the more upbeat lending picture.
“The picture is likely to be stronger than the April figure suggests, because some first-time buyers are likely to have brought transactions forward to March to take advantage of the stamp duty concession that was coming to an end.
“Eurozone developments are uncertain and could undermine UK economic prospects and housing and mortgage markets. The picture is likely to be one of easing momentum in the housing market, but with potential for a sharper downwards correction on bad eurozone news.”
Duncan Kreeger, chairman of specialist lender West One Loans, said: “If the eurozone crisis takes another serious turn for the worse then mortgage lending to first-time buyers could enter a state of near-paralysis.”
He said, while there were still plenty of potential buyers seeking to borrow, it was more and more difficult for people to find banks and building societies prepared to lend
“We deal with plenty of property investors looking for buy-to-let finance who have been turned away by banks.”