Quarter four also saw a significant decline in buy-to-let lending but both markets are expected to make a slight recovery as we move into 2015.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Decreased availability of mortgage finance had a knock-on effect in terms of declining consumer demand in the final quarter of 2014.
“However, this is likely to have been exacerbated by seasonal variations as the housing market wound down before Christmas.
“Lenders predict that demand will rise again in Q1 2015, and current conditions support this view: the mortgage rate war continues to rage on, with consumers benefiting from record low rates as lenders vie for business.”
The survey also revealed that lenders became less willing to lend at high loan to value ratios during Q4.
The spreads between the cost of borrowing for lenders and the rate charged to borrowers narrowed, while this trend is expected to continue in the next three months.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The Mortgage Market Review has resulted in tighter criteria and certain borrowers continue to be hit hard.
“The spreads between the cost of borrowing to lenders and the rate charged to borrowers narrowed significantly as lenders competed with each other for business.
“As this continues into the first quarter of this year, lenders expect to make further rate reductions, making competitive mortgages even more attractive.
“There are some great deals out there for borrowers at the moment, particularly on longer-term fixed rates.”