Net mortgage lending grew by 0.4% in the year to December 2012, compared to a growth of 1.5% in 2011 and 2.8% in 2010.
BBA statistics director David Dooks said: “2012 was a year of holding on to deposits and repaying debt for companies and households.
“New mortgage lending of £92bn was offset by £91bn of repayments and slow economic growth also continued to suppress new borrowing demand from consumers and from companies, where bond issuance was preferred to bank finance.”
Approvals for house purchase were 2% lower in 2012 than the previous year, while approvals for remortgaging dropped by 23%.
However, by December the average house purchase approval rose by £6,500 compared to December 2011, to £151,100.
In contrast to slowdown in net mortgage lending, last year saw the number of personal deposits grow by 6.1%.
PPR Estates director Nick Hopkinson said: “It’s clear the banks have a long way to go before they are really open for business and are still struggling will billions of pounds of bad debts in the background.
“It’s also distressing to see they are simply squeezing savers now they are getting cheap money from the Government – this tells us all we need to know about their collective moral consciences, once again.”
Mark Blackwell, managing director of xit2, said: “Mortgage lenders are facing a tentative recovery and less natural growth. In order to operate profitably in a tighter credit environment, lenders will have to optimise how they work rather than throwing resources at expansion.”
Phoebus Software managing director Paul Hunt said the mortgage market might not be in peak physical condition, but it was improving: “The Funding for Lending seems to be working – to a degree – and this has led to a jump in activity. The FLS will inject more energy into the lending market over the course of 2013. But this is a 10,000 metres race, not a sprint.
“The industry’s performing well but it’s going to be more Mo Farah, less Usain Bolt.”