Shock figures from the Council of Mortgage Lenders (CML) show that the number of new mortgages slumped by an enormous 29% between January and February. At just 28,500 the figure was also 12% lower than in January last year.

The CML said the fall was larger than expected at the time of year and due to an “unusual combination of factors”. The figures suggest the property market may be heading for a new downturn in activity due to mortgage rationing and the uncertain state of the economy. With the effects of last year’s government spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged.

This, coupled with December’s extreme winter weather, and uncertainty over future interest rate rises, has led to a lack of movement in the mortgage market.January’s fall in mortgage lending, which the CML admitted was “substantial”, takes lending back to its difficult position seen in the first few months of 2009, in the immediate aftermath of the international banking crisis.

Compared to earlier in the decade, the latest figures are a massive drop. For instance, in January 2003, 90,300 new mortgages were agreed with home buyers.

For the few first-time buyers able to agree new mortgages - just 10,500 in January this year - borrowing requirements eased slightly. The average deposit they had to put down fell to 20%, the lowest level of downpayment for more than two years.

Analysts believe that lending will have picked up again in February. The usual pre-Christmas slowdown, low consumer confidence generally, and the extreme weather in late November and December caused a reduction in applications in late 2010, which resulted in the fall in actual loan advances during the first month of the year.

Activity overall witnessed a marked increase in February over January both among house buyers and those looking to refinance existing arrangements.

However, the very weak CML mortgage advances data for January indicates that the housing market started 2011 on the back foot and supports a belief that house prices are headed down further over the coming months.

Further bad news for the housing market is the now strong possibility that the Bank of England will start to raise interest rates within the next few months to counter above target and rising inflation.

Latest figures from the Halifax show that UK house prices fell 0.9% in February, thereby cancelling out the modest rise of the previous month. Compared with February last year prices have now fallen by 2.8%

The average home in the UK now costs £162,657

Looking to the rest of the year, analysts believe that the uncertain economic climate is likely to depress the housing market, leading to a modest fall in prices over the course of 2011.

Fewer properties have been coming onto the market in recent months. If this trend is sustained it should improve the balance between demand and supply and help to prevent a more significant fall in house prices.

The Halifax uses a smoothed-out quarterly comparison to calculate annual house price changes. It recorded a 2.8% fall year-on-year in the three months to the end February, the biggest annual decline since October 2009.

Meanwhile, a poll of surveyors has found the cost of renting a home rose at a rapid rate in the three months to January.

Some 40% more surveyors reported that rents rose rather than fell, the highest level recorded since the Royal Institution of Chartered Surveyors (Rics) survey began in 1998.

Demand from tenants was growing, but they were chasing space in fewer properties, the poll found. This is no doubt linked to separate research suggesting that mortgage availability has shrunk again.

The proportion of social tenants has risen during the tough economic times. However, the proportion of student lettings had dipped compared with the previous three months, surveyors said.

Surveyors in all areas of Britain expected rents to continue to rise in the three months to April since its unlikely that finance for first-time buyers will become much more readily available, while uncertainty over the economy may also deter potential housebuyers.

As a result, demand for property to rent will remain strong and in all probability will continue to outstrip supply. In this environment, rents will remain on an upward trajectory adding to the pressure on many households whose incomes are already being squeezed by rising inflation prices and the hike in VAT.