Mortgage lending in February fell to its lowest level since 2016, excluding the pandemic, the Bank of England said yesterday.
But the number of mortgages approved by lenders rose slightly, suggesting the slowdown may be stabilising.
It comes as higher borrowing costs make buying property less affordable.
Homeowners borrowed £700million in February, down from £2billion in January, the Bank said. That is the lowest level since April 2016 apart from the Covid crisis.
However, mortgage approvals rose to their highest level for three months, climbing to 43,500 in February from 39,600 in January.
Karen Noye, a mortgage expert at Quilter, suggested people were still in "wait-and-see" mode as borrowing costs remained high.
'Green shoots'
But she told the BBC that the rebound in approvals meant "green shoots might be appearing" in the housing market.
"It's clear that home buyers are cautiously returning back to the market in early 2023 after the huge shocks at the back end of last year made many put their house hunt on ice. How this all feeds through to house prices is yet to be seen."
Mortgage rates began to rise last year as interest rates climbed, but they spiked in September after Liz Truss's mini-Budget caused panic on financial markets.
Rates have stabilised, but remain much higher than they were a few years ago, squeezing people's purchasing power.
It has fed through to house prices, which in the year to February saw their biggest annual fall in more than 10 years, according to Nationwide.
Nevertheless, the Bank of England forecast that fewer households were likely to struggle to afford mortgage payments this year than previously forecast due to falling energy prices.
Smaller homes
Alice Haine, a personal finance analyst at Bestinvest, commented that buyers were going for smaller homes to reflect their budgets as the "cost-of-living crunch is still very real".
"The cost pressures mean buyers simply cannot afford the same properties they could a year ago and must consider smaller or cheaper homes if they want to push ahead with a purchase at this time," she said.
FTSE 100
The UK's top share index, the FTSE 100, was up 23 points at 7,587 shortly after opening this morning, following yesterday's 80-point gain.
Brent crude futures were ahead 0.15% at $78.40 a barrel.
Companies reporting today
- Trading statement: Moonpig Group