Gross mortgage lending reached an estimated £20.5bn in March – 2.3 per cent down on the previous year.
UK Finance's update on lending for March 2018, found that the number of total mortgage approvals also fell and was 15 per cent down on last year.
In fact, house purchase approvals dropped by almost 21 per cent, compared with a year earlier.
However, there was growth in personal deposits, which grew by 1.8 per cent over the year, but the figure remained slightly down on the previous six-month average of 2 per cent.
Eric Leenders, managing director for personal finance at UK Finance, said: "March figures show that growth in personal deposits increased over the year, alongside a rise in overdraft repayments.
"There was a rising trend in mortgage approvals for the first three months of 2018, although the number is slightly lower than the same period in 2017."
Alex Reynolds, an adviser at London-based Advies Private Clients, said: "The figures certainly look quite bleak but I would be interested to know how much is due to the reduced buy-to-let lending as a result of the tax changes.
"The growth in house deposits may well be due to clients holding on to cash instead of investing it."
However, Alan Collett, fund manager at Hearthstone Investments, said there are still many positive factors to the current market for those looking at residential property as an investment.
He said: "The private rental sector is increasing and now provides homes for 20 per cent of all households, with many renters looking for flexibility rather than the ties that come with home ownership.
"However, many potential renters are put off by the poor quality of much of the rented housing stock, with almost a third failing to meet Decent Homes standards.
"As a result, we are seeing strong demand across the country from long-term tenants looking for well-managed, high quality modern properties."
aamina.zafar@ft.com
