(Recasts with additional housing starts data)
MADRID, March 26 (Reuters) - Mortgage lending in Spain more than halved in January, official figures showed on Thursday, and further data showed supply was adjusting to demand as the number of homes started in the fourth quarter dropped 62 percent.
The record 51.7 percent year on year fall in mortgage lending was the steepest in 12 straight months of decline amid soaring unemployment and debt defaults, government data showed.
In the same month house sales fell 38.6 percent, figures published earlier this month showed, but analysts say it will be several years before a glut of housing supply comes into line with demand, which was massively inflated in the boom years by foreign purchases and rampant speculation.
Housing Ministry data showed the foundations of 40,737 homes were laid in the fourth quarter -- 62 percent fewer than in the fourth quarter of 2007, and 27 percent down on the preceding quarter.
A sharp fall in new building will help, although lower housing starts will take another 18 months to feed through into supply. For the whole year, Spanish builders started 360,044 homes -- a 41.5 percent fall.
The ministry also said 633,228 homes were completed last year, reflecting the strength of demand when the buildings were started at the height of the boom in 2006-07.
Spain has a supply overhang estimated at 1 million unsold homes -- three times the number of households created in Spain each year -- according to analysts.
The number of mortgages offered has crashed as banks restrict credit given forecasts non-performing loans will reach around 9 percent next year, with unemployment to above 4 million from a current 3.5 million. Spaniards are reluctant to take on more debt given fears they could be caught in the next round of job losses.
That led to January mortgage lending falling to 6.47 billion euros ($8.78 billion), the National Statistics Institute reported. (Reporting by Ben Harding, Andres Gonzalez and Andrew Hay; Editing by Andy Bruce)