The fall in appetite came from both prime and buy-to-let, as well as remortgages, according to the credit conditions first quarter survey.
However, lenders expect remortgage demand to pick up again in the second quarter, between April and June.
The Bank of England is tipped to raise interest rates in May, which could prompt another wave of remortgaging.
In an overall review of the credit market, the Bank of England said mortgage competition has continued to intensify.
Interest rates on higher loan-to-value (LTV) products have fallen since November – despite an increase in swap rates, which affect the cost of funding for lenders.
Interest rates on lower LTV products have were broadly unchanged over the same time period.
The bank said: “The major UK lenders noted that competition remains very strong and since November has increased in the higher LTV market, perhaps in part because profit-margins for lower LTV products are already squeezed.”
Mortgage lending is growing steadily, with higher remortgaging in recent months, according to policymakers.
The bank continued: “Approvals for remortgaging have risen since early 2015 and there were a couple of particularly strong months in late 2017.
“More frequent remortgaging has partly been encouraged by the increase in popularity of two-year fixed rate deals.
“Intelligence from lenders suggests a particularly large number were coming up for renewal in late 2017.”