Last year saw the strongest gross mortgage lending to date, but the market is weakening, the Council for Mortgage Lenders (CML) has said.
CML figures showed gross lending reached £362bn in 2007, up 5% from £345bn in 2006, and above its forecast.
However, gross lending was £22.6bn last month, down 25% from November and the lowest monthly figure since May 2005.
The CML said the problems in the credit markets were still limiting lenders' ability to advance money.
"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," said CML director general Michael Coogan.
"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 added.
However, despite the funding constraints caused by global economic conditions, Mr Coogan insisted the UK mortgage market was "highly competitive", and would continue to offer a range of good deals to "better risk borrowers".
'Scaling back'
The CML figures support other surveys showing a declining property market.
"The tougher lending environment is likely to be particularly problematic for first time buyers"
Last week, the Royal Institution of Chartered Surveyors (Rics) warned property prices were falling to an extent not seen since the 1990s housing recession.
It said 49.1% more surveyors saw price falls in December than reported a rise, the gloomiest figure since November 1992.
Rics senior economist Simon Rubinsohn said the CML's latest figures were further evidence of lenders' increasingly cautious stance about sanctioning new borrowing.
"The tougher lending environment is likely to be particularly problematic for first-time buyers," he said.
"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 first step on the property ladder," he added.
Consensus
Recent data from the Department of Communities and Local Government revealed that prices fell by 0.8% in November, compared with a slight rise of 0.1% in October.
The latest research from the Halifax bank and the Nationwide building society showed the market continued to weaken in December, showing annual price growth of 5.2% and 4.8% respectively.
Mortgage approval levels also fell to a three-year low in November.
In common with many analysts, the CML has already said it expects house price inflation to be largely flat in 2008.
A smaller number of commentators have said they believe prices will actually fall.
The Bank of England's Monetary Policy Committee (MPC) voted unanimously to cut interest rates from 5.75% to 5.5% at its December meeting.
The MPC decided to hold rates at its January meeting, but many economists expect it to cut again very soon, possibly as early as February.
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