Mortgage lending rose by 4% in September compared with the same month last year, but lenders today warned that confidence in the housing market is likely to fall in the coming months.
The Council of Mortgage Lenders (CML) said that gross mortgage lending totalled around £12.9 billion last month.
The figure was down 2% on the £13.1 billion lent in August this year, when mortgage lending hit a two-year high.
CML chief economist Bob Pannell predicted that CPI inflation - which hit a three-year high of 5.2% in September - and unemployment fears would reduce market confidence.
He said: "Both house purchase and remortgage lending appear to have fared well in September, but this is against the backdrop of subdued levels of activity.
"However, short-term economic prospects for the UK are not favourable. The housing market is very sensitive to wider household confidence, and this seems likely to weaken over the coming months in response to the latest spike in consumer prices and headline unemployment figures."
Lending for the third quarter of 2011 was an estimated at £38.6 billion, up 15% on the second quarter of this year, when £33.5 billion was lent.
The latest quarter also represents a 2% increase on the same period last year, when £37.9 billion was lent in the third quarter of 2010.
The CML's members are banks, building societies and other lenders who undertake around 94% of all UK residential mortgage lending.
The figures were released on the same day that housing minister Grant Shapps called for lenders to consider offering fixed mortgages of up to 30 years to encourage greater market stability.
Mr Shapps wants to spark a national debate on longer-term fixed mortgages as a "normal and sensible choice".
David Whittaker, managing director of Mortgages For Business, said of the latest figures: "The cocktail of record low interest rates and record high inflation has made the prospect of saving for a deposit as realistic as finding a pot of gold at the end of a rainbow."
Howard Archer, chief UK and European economist at IHS Global Insight, forecast house prices are set to head downwards.
He said: "Mortgage lending is still very low compared to long-term norms and, with the economic environment looking decidedly worrisome, we believe that house prices are headed downwards over the coming months.
"We currently see house prices falling by around 5% by mid-2012. Furthermore, we believe that there are mounting downside risks to this forecast.
"We suspect that squeezed purchasing power, a now markedly weakening labour market and major concerns over the economic outlook will limit potential buyers and weigh down on house prices.
"And there is a very real danger that banks' future ability to lend to home buyers could be hit by difficult wholesale funding conditions. These factors are seen outweighing the support to house prices coming from extended very low interest rates."
Richard Sexton, director of e.surv chartered surveyors, said there was "little to celebrate" about the latest figures.
He said: "With inflation so high, the year-on-year rise is actually little to celebrate.
"The reality is mortgage lenders are actually retreating from high loan-to-value lending.
"Their confidence has been further dented by the economic crisis that is running amok in the eurozone, and by the cracks beginning to appear in the Government's growth strategy.
"With the supply of credit so restricted, there is almost no scope for them to grow their loan books, so they are understandably playing it safe and focusing on targeting borrowers with big deposits."
Duncan Kreeger, chairman of West One Loans, said high street lenders were retreating from the market or only targeting the very wealthy, creating a "lending void", particularly for potential buy-to-let investors.
He said: "While gross mortgage lending is effectively stagnant, gross bridging lending has risen 46% in the last year and, according to our forecasts, will hit £800 million by the end of 2011.
"With mortgage lending so painfully subdued, bridging finance is providing the lifeline that private investors and buy-to-let landlords need."
Alex King, director of mortgage broker SPF Private Clients, said: "As the CML rightly observes, soaring inflation and rising unemployment do not inspire confidence among consumers...
"Given the ongoing and very real threats to the global economy, the flat market we're in is no bad thing."