Hopes of a recovery in the mortgage market were fuelled by the latest figures from the Bank of England today, which showed that the number of mortgages approved for home purchase rose to an 18-month high of 56,215 in September.

The figure follows 52,970 approvals in August and a record low of 27,257 last November.

However, the total value of all home loans, which includes loans for remortgaging and for home improvements, fell in value by £300 million. Approvals for remortgaging, at 25,528, were below the August figure of 28,348 and below the previous six-month average of 31,604.

The report echoes similar figures published last week by the British Bankers’ Association. Housing market experts have said that borrowers are not remortgaging because the standard variable rates available with their current lenders are lower than new deals elsewhere, while interest rates remain at their historic low of 0.5 per cent.

Recent activity in the mortgage market has been continuing to firm in recent months from the record low level seen in November 2008, supported by the significant fall in house prices from their 2007 peak levels to their March 2009 troughs.

However, Howard Archer, chief UK and European economist at IHS Global Insight, said that the improvements in lending had been “modest” overall.

“With housing market activity still at a relatively low level compared to long-term norms, unemployment high and still rising, earnings growth low and still falling, and house price/earnings ratios currently moving back up, we suspect that the recent firming in house prices will fizzle out before long,” he said.

He added that house prices may drop another 5 per cent by the end of 2010.

The Bank of England report also showed that consumer credit fell by a net £300 million in September, below the previous six-month average. Credit card lending increased by £100 million, but there was a net repayment of £341 million on other loans and advances, the fourth monthly repayment in a row.

Commenting on the repayment figures, Mr Archer said: “This is clearly the consequence of many consumers' desire to reduce their debt, low demand for credit and a lack of availability of unsecured credit from banks.

"Elevated and rising debt levels mean that there is an urgent need for many consumers to improve their balance sheets, while still serious concerns over jobs and the economic outlook are causing a substantial number of people to want to save more."

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