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In October the CML forecast that there would be a year-on-year slowdown of around 15 per cent in terms of net lending, with figures for 2008 down to around £90bn from £108bn in 2007.

However, speaking at the CML annual lunch in London today, Steven Crawshaw, chairman of the CML, said that the picture is of even greater slowing demand since that forecast.

"Potential borrowing still exceeds the industry’s collective capacity to supply funds. It is therefore a real possibility, looking forward from today, that net lending in 2008 could reach only half last year’s level unless additional funds become available."

According to Crawshaw, the Bank of England needs to take steps to deal with underlying problem facing lenders which is that lenders are hoarding liquidity because they are concerned about whether they will be able to access future funding.

"They’re worried less about the here and now and credit risk in the UK mortgage market, than the uncertainty about whether they’ll be able to get funds when they need to refinance their own maturing debt commitments and new mortgage offers they are seeking to make."

He suggested an extension of repo facilities beyond three months to 12 or 24 months, which would help address lenders concerns.

"And kick-starting the market for new issuance of mortgage-backed securities – perhaps by incentivising the kind of stable, domestic investors such as pension funds that would fit this market well – is something that the CML believes the Bank should seriously consider."

Crawshaw also appealed to Bank of England governor Mervyn King to show leadership and coordinate central bank responses globally to deal with the current systemic risks.

"There is a real and immediate need for broader based action than we have seen to date," he said.