Banks' gross lending up 7pc

The annual growth of the banks’ net mortgage lending was 1.6% in September, remaining ahead of the 0.6% for the whole mortgage market in August.

The slight upturn in recent months in both house purchase and remortgaging approvals has led to a stronger gross mortgage lending in August and September but as capital repayment continued at a high level, net mortgage lending increased by just £0.8bn in September.

House purchase approvals were lower than in August but 8% higher than in September 2010. The average value of £142,600 was about the same as a year earlier said the BBA.

The banks’ trade body attributed the rise in mortgage activity was due to growth in the buy-to-let market as rental yields improved.

The number of remortgage approvals in September was lower than in August and much the same as in September 2010.

Approvals for other secured lending continue to be fairly stable, as homeowners use the equity value in their homes as security for borrowing.

Jonathan Moore, director of Easyroommate, said: “The recent improvement in gross lending may seem like welcome news to buyers, but the increase has more to do with buy-to-let landlords taking advantage of the current rental market than a much needed surge in lending to first-time buyers.”

Simon Clark, mortgage broker at Jacobs Payne & Parry Financial Services, said: "There has certainly been a sharp rise in the amount of buy-to-let mortgage activity, as amateur landlords seek to profit from the soaring rentals market. We have seen buy-to-let applications more than double over the past six months.”

Duncan Kreeger, chairman of West One Loans, said: “If you take inflation into account, the mortgage market is shrinking in real terms. Embattled high street banks are looking to recoup equity. They want to lend cautiously, to wealthier borrowers with higher deposits.

“That’s not only affecting first-time buyers, it’s also hitting potential buy-to-let lenders. Bridging lenders are filling the mortgage void left by the retreat of high street lenders from the market. At the moment, bridging finance is the lifeboat many BTL borrowers in particular are turning to.

“But if the economy nosedives over the winter, the market for borrowers with small deposits could enter a state of near paralysis.”

Richard Sexton, director of e.surv chartered surveyors, said: “The mortgage market is doing its best to stagger on. The ailing economy is entering a state of rigor mortis, and the crisis afflicting Europe makes any resurrection of growth look unlikely.

“The temptation for lenders to pull back from the market and recoup equity over the winter is becoming overwhelming. First-time buyer numbers have fallen to their lowest since November 2010, and purchase approvals with a deposit of 25% fell to their lowest level in six months in September, both of which are tell tale signs of a struggling mortgage market.

“Supply of credit is painfully restricted, meaning there is almost no margin for lenders to grow their loan books, so they are being understandably cautious and focusing on targeting borrowers with big deposits.”