The drop from £11.7bn in November marked the fourth consecutive month that monthly lending was at its lowest since 2000.
CML figures showed that annual lending totalled £136.3bn in 2010, down 5% on £143.3bn in 2009 and the lowest annual total since £119.8bn in 2000.
However, gross mortgage lending in 2010 was slightly above the CML’s annual forecast of £135bn.
December’s monthly gross mortgage lending was down 18% year-on-year from £13.3bn in December 2009.
However, the CML highlighted that the comparison was distorted by the fact that people put forward their house purchases at the end of 2009 in order to take advantage of the stamp duty holiday.
The report showed that quarterly lending fell in the fourth quarter to £34.4bn from £37.9bn in Q3 and was 11% lower than Q4 of 2009, when lending totalled £38.7bn.
In addition, the CML noted that recent inflationary pressures could result in base rate rising sooner than previously expected.
However, it said that it was unlikely that base rate would exceed 1% this year, with indicators showing that the UK growth rate is likely to slow markedly in the first half the year.
Peter Charles, economist for the CML, said: “Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing. Against this backdrop, consumer demand may be weaker than we would otherwise have expected.
“Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders. Consequently, we believe there will be little change in the level of arrears this year and we do not anticipate revising our current arrears forecast.”
Paul Sabbato, a director of First 4 Bridging, said: “The near-paralysis of the mortgage market continues. December is always a quiet month but this was a quieter December than usual.
“There’s no doubt that many people who may have been considering buying a couple of months ago have shelved their plans until there is more clarity on when, and by how much, rates will rise. Higher inflation looks like it is going to force the Bank’s hand and if that’s the case then borrowing will come under further pressure.”
He added: “Consumer confidence isn’t just being undermined by the potential of rate rises. There’s also the small matter of rising unemployment and soaring living costs. If there’s a degree of risk in buying a home or taking on a bigger mortgage, more and more people are choosing not to take it.
“Consumers have never been so cautious.”
