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The number of mortgages approved for house purchase rose to a 13-month high last month as buyers returned to the property market.
The British Bankers' Association said 31,162 loans were approved for people buying a property in May, 7% up on April's figure and 16% higher than in May last year - the first annual increase since November 2006.
However, the positive news was tainted by a report from ratings agency Fitch which showed the number of homes in negative equity will rise sharply as house prices continue to slide.
The ongoing weakness in the remortgage market dragged down overall lending figures, with total advances of £7.7 billion the lowest since February 2001.
BBA statistics director David Dooks said: "Steady monthly increases since last November have seen the number of loans approved for house purchase recover to levels seen in early 2008, although gross and net mortgage lending show a subdued wider mortgage picture.
"However, unlike much of the mortgage market, the High-Street banks are still seeing lending growth and improved mortgage availability is reflected in higher average loan approval values."
