Strong demand from people buying a new home helped mortgage lending edge up by 2 per cent during September, figures showed today.
A total of £12.5 billion was advanced during the month, the second highest figure this year but still 27 per cent lower than in September 2008, according to the Council of Mortgage Lenders.
The group said the improvement during September was driven by a pick-up in people borrowing money to buy a new home.
But it said the rise in house purchase activity was offset by the ongoing decline in the number of people remortgaging, as low interest rates mean many homeowners are better off staying on their lender's standard variable rate when their existing deal comes to an end.
CML economist Paul Samter said: "House-buying activity is running at considerably higher levels than around the turn of the year.
"However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop."
The housing market has stabilised in recent months, with Nationwide recently reporting that prices had returned to the same level they were at a year ago during September, as a shortage of homes for sale forced up values.
A total of £38.9bn was advanced during the third quarter of the year, 18% more than during the previous three months, but still 36 per cent down on the same period of 2008.
But despite the fact that lending levels are still down year on year, the CML said there were some positive signs.
Mr Samter said: "Some of the UK's highly rated institutions have been able to issue structured finance products backed by mortgages in recent weeks.
"This is only an early sign of wholesale investors tentatively coming back into the new issuance market, but is welcome nonetheless."
The wholesale money markets, once a major source of funding for lenders, dried up in the wake of the credit crunch.
Specialist lenders, which do not have savers' deposits to fall back on, and the now nationalised Northern Rock were hit particularly hard by having this source of funding turned off.
But news that the wholesale markets are beginning to open up again should help to boost the recovery in the mortgage market.
The CML figures come the day after City watchdog the Financial Services Authority set out proposals for reforming the regulation of the mortgage market.
These proposals include making lenders carry out affordability checks on all borrowers, and a ban on self-certification mortgages and loans which combine high-risk lending characteristics.
The regulator also wants to bring buy-to-let lending and second-charge mortgages, which enable people to take out loans secured on their property, under its scope.
Andrew Montlake, director of mortgage broker Coreco, said: "While these latest figures hardly set the world alight, they do highlight the continued stabilisation in the housing market and some undoubted positive signs.
"There is, however, a danger that proposed regulatory changes in the near future could serve to derail this improvement."