Gross mortgage lending in December fell 14% from November's all-time high of £33.2 billion to £28.6 billion, according to the Council of Mortgage Lenders.

Despite the drop, it was still the highest December figure on record, as house prices continued to climb.

Affordability was stretched even further for those entering the market in December, as first-time buyers' income multiples reached a record high of 3.31, and the proportion of income spent on servicing their mortgage interest payments rose to 17.9%.

Despite this, over 2006 as a whole the number of mortgages to first-time buyers increased by 19%, while their value increased by 34%. The more rapid rise in value than number reflects rising house prices. First-time buyers accounted for 36% of all house purchase loans, slightly up on the 2005 figure of 35%.

The number of mortgages to those moving house increased by 11% in 2006, with their value increasing by 30%. Again, the discrepancy between the increases reflects the effect of rising house prices.

It is not surprising that in the wake of worsening affordability, fixed rates remained popular throughout the year.  Over 2006 as a whole, two thirds of those buying or remortgaging chose the certainty of a fixed rate deal, compared with only just over half in 2005. However, it remains to be seen whether the popularity of fixed rates will continue in the wake of the most recent rate changes and changes in the relative pricing of fixed and variable rate deals.

Interest-only loans increased in popularity in 2006, but this was not driven by first-time buyers. The proportion of first-time buyers borrowing on an interest-only basis with no repayment vehicle specified was virtually the same in 2006 as in 2005 -16% in 2006, compared with 15% in 2005. Given that the FSA's recent research on interest-only loans concluded that those most vulnerable to problems with interest-only loans were new buyers with little equity, it is reassuring that there appears to be very little growth in interest-only loans to these types of borrowers.

Once again, the proportion of first-time buyers caught by stamp duty increased in December. Only 41% of first-time buyer mortgages were on properties below the £125,000 stamp duty threshold - down from 44% in the preceding two months, and around 50% when the threshold was set in the last Budget.

CML director general Michael Coogan said: "The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers - and the ever-rising proportion of them who are caught by stamp duty.”

"Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continuing decline in affordability are likely to dampen activity somewhat in 2007."