Bank of England figures show a sharp fall in lending, with demand for prime mortgages – the most secure loans – diving particularly quickly.
“The fall in demand was significant in prime lending,” the Bank of England said.
“Some lenders attributed the reduction in secured lending demand over recent quarters to a combination of changes in regulatory policy; concerns about housing affordability; and uncertainty about the outlook for the housing market.”
The proportion of banks reporting falling demand for prime mortgages outweighed those reporting a rise in demand by 44.8 per cent, the biggest fall since 2008.
But a net balance of 16.8 per cent expect this to pick up again after the General election next month.
One factor is the risk that a buyer will splash out on a property worth more than £2m, then be hit by the mansion tax which Ed Miliband plans to bring in, should he win the vote.
“For demand to have fallen particularly sharply at the upper end of the market underlines the sensitivity of this demographic to political uncertainty,” said Jonathan Samuels from Dragonfly Property Finance.
“Many prime and super-prime buyers are sitting on their hands and want to see what the next government looks like before they commit to a purchase. This is especially the case in the capital.”
However, supply from banks still remains relatively high.
“The prospect of low borrowing costs and greater availability of credit from lenders should encourage more people back to the mortgage market,” said Brian Murphy from brokerage the Mortgage Advice Bureau.