THERE was a drop in mortgage lending in September for the second consecutive month, according to the latest data from the Council of Mortgage Lenders (CML).

The CML survey, which covers banks and building societies, recorded a four per cent fall in gross lending between August and September.

And at £25.4bn, gross lending in September showed the first year-on-year drop since October 2000, nearly per cent lower than the £25.9bn figure from September 2003.

As in August, September's fall in lending reflected a sharp reduction in loans for house purchase. House purchase loans totalled £11.2bn, compared with £12.8bn in August.

Lending for house purchase was 23 per cent lower in September than the record £14.6bn in July. This is 44 per cent of total lending September, down from 48 per cent the previous month and from last September's figure of 47 per cent.

Michael Coogan, CML director-general, said: "All the latest lending data reinforces evidence that the expected slowdown in the housing market is materialising.

“Data from other surveys corroborates the picture of an exceptional recent market that is now gently losing steam. At the same time, the Bank of England has been emphasising that interest rates may not yet have peaked.

“But unless there is a marked change in the direction of lending and house price data…it looks as if inflationary pressure arising from the housing market itself has now dramatically reduced."