Gross lending by building societies hit a year high last month, but remains more than 40% below the figure recorded in July 2008.
According to the Building Societies Association (BSA), lending rose to £2.1bn in July, the highest monthly amount this year but still 42% lower than the £3.6bn lent in the same month last year.
Mortgage approvals were down to almost £1.5bn in July, compared to £2.6bn the previous year. Net lending was -£577m over the month, compared to -£112m in July 2008.
The BSA says it expects the mortgage market to remain subdued for the remainder of 2009, because of the difficulties lenders face in raising funds for mortgages.
Director general Adrian Coles says low interest rates, rising unemployment and weak earnings growth will create an environment in which it would be "very difficult" for deposit-takers to attract funds.
"The retail market is the most important source of funds for all lenders, and with wholesale funding continuing to be disrupted, it is perhaps not surprising that lending activity is constrained," he says.
The BSA also used its monthly e-newsletter, BSA Newsbite, to hit back at claims lenders were profiteering from the current climate, saying there were factors other than the Bank of England base rate to consider when pricing mortgages.
"Once these are considered, it is evident that lenders are not making as much profit as may first appear," it read.
A spokesman adds: "Indeed, the results of the large banks show levels of profit at their UK retail operations dropped considerably in the first half of 2009, by about 78% year on year."
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