The number of mortgages approved for house purchase rose for the fourth month in a row during May as buyers continued to return to the property market, figures showed today.
A total of 43,414 loans were approved for people buying a home, up marginally from the previous month's 43,191, but 10% higher than in May last year, according to the Bank of England.
But net lending, which strips out redemptions and repayments, dived to £324 million, the lowest figure since the Bank began collecting statistics in this format in April 1993.
The steep drop in net lending is being driven by a fall in the number of homeowners remortgaging, as low standard variable rates and the high levels of equity being demanded by lenders mean many people are better off staying where they are when their existing deal ends.
Only 30,984 loans were approved for people remortgaging during the month, while total advances, which include all types of mortgage lending, were £10.65 billion in May, less than half the £23.81 billion lent during the same month of 2008.
While the net lending figure strips out remortgaging activity, it does include any increase in borrowing by remortgage customers.
But the current financial climate, as well as falling house prices, has made people unwilling or unable to unlock additional equity from their homes when they remortgage.
The record low net lending figure also reflects the house price falls of more than 20% that have been seen since the downturn began, as well as the larger deposits people are currently putting down, both of which are contributing to buyers borrowing less than previously.
Philip Shaw, an economist at Investec, said he was disappointed by the relatively soft mortgage approval for house purchase figures.
The housing market has been showing signs of improving in recent weeks, with several house price indexes reporting price rises, while estate agents have said sales levels are rising.
Housing intelligence group Hometrack today said house prices in England and Wales had remained unchanged for the second month running during June, following a 36% rise in potential buyers during the past six months, during which time the number of homes on the market has increased by only 6.4%.
But economists have warned that house prices are unlikely to have reached the bottom of the cycle yet due to rising unemployment and the ongoing problems in the mortgage market.
Vicky Redwood, UK economist at Capital Economics, said: "The recovery in housing market activity has stalled, at least temporarily.
"The number of mortgage approvals for new house purchase was unchanged at 43,000 - a level still consistent with house prices falling at double digit annual rates."
Howard Archer, chief UK and European economist at IHS Global Insight, was slightly more positive, saying: "The Bank of England reported that mortgage approvals for house purchases rose for the fifth time in six months in May, albeit less than expected, to stand at a 13-month high of 43,414.
"The further, but limited, rise in mortgage approvals in May adds to now widespread evidence that housing market activity is trending up gradually. Nevertheless, it is still weak compared to long-term norms.
"Consequently, we still suspect that house prices will fall by another 10% from current levels to trough around mid-2010. However, we acknowledge that there is an increased possibility that this could be too pessimistic a view."
The contraction in lending by building societies continued during May, with net mortgage lending negative for the fifth consecutive month.
Net lending by the sector was minus £752 million, meaning homeowners repaid £752 million more to mutuals than they advanced through new lending.
Building societies also continued to lose savers' money during the month as record low interest rates cause people to transfer their funds to other investment vehicles or use the money to repay debt.
Savings balances held by the sector fell by £106 million in May, after consumers withdrew £494 million.
The rate at which consumers took on new unsecured debt also remained subdued during May, according to the Bank of England figures.
Credit card borrowing rose by £209 million, down from an increase of £285 million in April.
Borrowing through loans and overdrafts reached £91 million - the first time in five months that the figure has been positive, although it remains well down on the £715 million borrowed through these channels in May last year.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies