The Council of Mortgage Lenders says £12.4bn was lent in October – the lowest figure for that month since 2000 – as the traditional seasonal uplift failed to materialise

Mortgage lending slumped to its lowest October level for a decade as activity in the housing market remained subdued, figures showed today.

A total of £12.4bn was lent during the month, unchanged from September but 9% lower than in October last year, the Council of Mortgage Lenders (CML) said. It was also the lowest figure recorded by the group for October since 2000.

Brian Murphy, head of lending at the Mortgage Advice Bureau, said: "In a normally functioning market you would expect to see an uplift in overall activity between September and October following a plateau in the summer months. But this isn't a normally functioning market.

"Borrowers are nervous, even more so since the spending review and confirmation of some half-a-million public sector job losses. This fear for their personal circumstances has contributed towards the drop-off in mortgage applications."

The CML's Peter Charles said that while the subdued market is evidence of the severity of the recession, there are key differences between the current economic situation and the downturn of the early-1990s. "There is a lower level of mortgage arrears and possessions, reflecting the significantly lower incidence of job losses and, in particular, the marked difference in the path of interest rates.

"Inflation is expected to remain below the Bank of England's 2% target rate through 2012 and 2013, and with interest rates rising only slowly and little change in the level of unemployment (as the expansion of private sector employment offsets public sector job cuts), the implication is that mortgage arrears will remain well below previous peak levels."

But the figures will make grim reading for renters, who face soaring monthly payments, as well as the coalition government, which was hoping its recent cutbacks might help kickstart the housing market.

Figures also published today show that tenant arrears dropped in October and rents rose for the ninth consecutive month, according to the latest buy-to-let index from LSL Property Services. Unpaid rent dropped from £229.3m in September to £221m, meaning 9.3% of all UK rent went unpaid in October, just 0.1% off the all-time low.

In October UK rents rose for the ninth consecutive month, by 0.4% to £691 a month, surpassing September's record high of £689 and taking annual inflation in the average UK rent to 4.5%. LSL said the average yield for landlords remained stable at 4.9%. David Newnes of LSL added that rents "can only go one way."

James Moss, director of Curzon Investment Property, said: "Without access to finance buyers cannot purchase homes, and with the situation likely to get worse there is every chance we could see another fall in house prices. The only thing keeping prices stable is the government's woeful lack of a coherent housing policy – the coalition is building even less than under Gordon Brown.

"Combine this with rising student fees and job losses across the public sector and what we're left with is Britain facing up to being a nation of renters as the homebuying dream is eroded by another parliament of botched housing solutions and little access to finance."