Mortgage approvals hit a near three-year high in October, according to the Bank of England, suggesting the housing market is very far from running out of steam.

The Bank said today that mortgage approvals for house purchases, seen as an indicator of future market activity, rose to 128,000 last month. The figure was the highest since December 2003 and far above the long-term average of about 97,000.

Net mortgage lending rose by £9.8 billion, the biggest gain since September 2003. The figure easily beat economists’ predictions for an increase in line with the six-month average of around £9 billion.

The figures suggest September's surprise interest rate rise has done little to dissuade homebuyers. Economists also expect the market to weather the further hike in borrowing costs that came this month.

Allan Monks, an analyst at JP Morgan, said: "Unless approvals come off very quickly - which we do not see as likely - the continued high level is likely to underpin further gains in house prices over the coming months."

Analysts have recently played down the possibility of a further rise in interest rates in February, with the OECD saying yesterday that it thought UK rates should have peaked at the current 5 per cent.

But economists today suggested that continued strength in the property market could yet figure in the Bank's thinking and hand ammunition to policy hawks.

Howard Archer, chief UK economist at Global Insight, said: "While the Bank of England has recently played down the role of house prices in its setting of interest rates, it will nevertheless be concerned about the market’s current buoyancy."

However, Mr Archer added that it was possible that some people were seeking to tie up mortgage deals before November's expected rise. Other economists said that recent hikes in interest rates would take time to filter through to buyer behaviour.

Alan Clarke, at BNP Paribas, said: "These data are for October, so it is not fair to say that the two rate hikes have not yet had any impact, firstly because the November hike hadn’t been delivered at that stage and secondly because the nature of buying a home is rather lengthy."

Today's figures also showed that unsecured borrowing through credit cards, loans and overdrafts also beat forecasts. Net consumer credit rose by £1.1 billion over the month, up from a £1 billion rise in September. Analysts had expected a rise of around £900,000.

Total net lending on secured and unsecured lending jumped by £10.9 billion, up from a £9.9 billion rise in September, to register the biggest increase since July 2004.

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