Overall lending was suppressed by continued poor levels of remortgage lending during August, with just 22% of gross lending during August advanced to remortgage borrowers.
The combination of low remortgage and the subdued housing market, pushed overall lending down by 2% compared with August 2011.
Customers purchasing homes provided some welcome relief, however, according to the Council of Mortgage Lenders (CML).
A total of 55,300 house purchase loans were advanced, equating to £8.4 billion, up by 12% compared to the previous month.
CML director-general Paul Smee, suggested that the Government's lending initiatives could create some positivity over forthcoming months.
"House purchase lending showed an encouraging rise in August, but it's unclear whether this reflects just the unravelling of previous factors such as the Jubilee and the Olympic Games, or a shift in the underlying picture," he said.
"We will wait and see whether schemes such as Funding for Lending and NewBuy provide a further boost to the market in coming months."
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