Gross mortgage lending rose to its highest level last year. Figures from the Council of Mortgage Lenders (CML) show that banks lent a total of £362 billion to homeowners last year, up 5 per cent on 2006 and the highest level since records began in 1999.

But this record result comes as the market is slowing down. The CML said lending in December was £22.6 billion, down 25 per cent on November and the lowest level in any month since May 2005.

Michael Coogan, director general of the CML, said: “The credit crunch moved into its fourth month in December and continued to constrain the cost and availability of funds to lenders and, in turn, the cost and number of mortgage products available to borrowers.

“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."

Rightmove, a homes search website, said that house prices slipped by 0.8 per cent this month, after a 3.2 per cent fall in December.

But Mr Coogan pointed out that the mortgage market was still competitive and would continue to offer good deals to lower risk borrowers.

Homeowners with credit problems are unlikely to be spoilt for choice when it comes to choosing a homeloan however. Many sub-prime lenders have tightened their lending criteria in the wake of the credit crunch, and this could leave sub-prime borrowers in a difficult situation as they struggle to get a new homeloan deal.

Simon Rubinsohn, senior economist at the Royal Institution of Chartered Surveyors, said market conditions could also prove problematic for first-time buyers. "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."