Mortgage lending to first-time buyers has reached its strongest level in more than five and a half years as the housing market revival continues.
The Council of Mortgage Lenders (CML) reported that the number of loans handed out to people taking their first step on the property ladder was two-fifths (40%) higher in July than the same period a year ago, and 5% higher than in June.
Some 25,300 loans worth £3.5 billion were advanced to first-time buyers in July, marking the highest number seen since November 2007.
Total UK mortgage lending stood at £16.7 billion in July, a 29% year-on-year increase, as lending to home movers, buy-to-let investors and people looking to remortgage also saw growth.
A stream of reports have suggested that the recent upswing in the housing market is not yet showing any sign of tailing off. The stronger-than-expected burst in activity has caused several experts to revise their house price forecasts upwards for 2013 and some have raised concerns that a house price "bubble" could be created.
The Government's flagship Funding for Lending scheme was launched more than a year ago, giving lenders access to cheap finance in order to help borrowers, while other initiatives such as Help to Buy and NewBuy are specifically aimed at giving people with deposits as low as 5% a helping hand to buy a property.
A mortgage price war has broken out between lenders and figures released by the Bank of England earlier this week showed that the typical mortgage rate for new borrowers has dropped to a record low of 3.47%.
The CML's lending figures showed that the affordability of loans taken out by first time buyers has shown a small improvement. The typical size of a first-time buyer loan was almost unchanged in July on the previous month, at just over £117,000, but the typical household income for this sector has increased slightly on the previous month to just over £36,000.
First-time buyers in July borrowed 3.31 times their income typically, down from a ratio of 3.33 in June. They were also putting down smaller average deposits as lenders' risk appetite returns, at 18%, compared with 20% in June.
Meanwhile, lending to home movers rose by 9% on the previous year, with 32,000 loans worth £5.6 billion advanced,t he CML's figures showed. On a month-on-month basis, lending to home owners grew at a faster rate than lending to first-time buyers, with a 12% increase.
Paul Smee, director general of the CML, said the strong monthly rise in home mover activity is significant. It suggests that more housing chains are being freed up as the market gathers pace.
He said: "For only the second time this year the monthly growth of movers exceeded the growth in first-time buyers. This is a positive sign of a mortgage market where obstacles to transactions are now reducing."
The report also showed that buy-to-let lending is continuing on an upward trend. Tenant demand in the rental sector is still reported as strong, despite more people getting on to the property ladder. More landlords are being attracted into the market due to the prospect of decent rental returns.
Some 15,200 buy-to-let loans were advanced in July worth £2 billion, marking a 12% month-on-month increase.
Housing Minister Mark Prisk said: "Today's figures from the Council of Mortgage Lenders offer a further encouraging sign that the housing market is turning a corner."
He continued: "W e're also pulling out all the stops to get Britain building, which means new housing supply is at its highest level since 2008 with 334,000 new homes built in England over the past three years.
"On top of this our £1 billion Build to Rent fund will help build a bigger, better private rented sector and our schemes to help aspiring homeowners have led developers to report that they'll be building more new homes over the next few years."