The housing market has seen a spring bounce, surveys show
Mortgage lending rose slightly in March but borrowers continued to pay off loans and overdrafts, according to the major UK banks.
The number of mortgages approved for house purchases stood at 34,905 in March, up 5% on the previous month, the British Bankers' Association said.
The group added that low interest rates continued to affect consumer behaviour.
There has been a 5.7% annual drop in lending to non-financial companies by the major banks, the figures showed.
There has been some evidence of the traditional spring bounce in the housing market in recent weeks with estate agents and surveyors reporting a big rise in the number of people putting their homes up for sale.
But the Council of Mortgage Lenders said that activity would still be relatively subdued this year and repeated its warning that lenders' finances were likely to be severely restricted for several years.
The British Bankers' Association (BBA) figures show that gross mortgage lending in March - of £8.7bn - was less than the average of the previous six months.
The number of mortgages approved for house purchases was subdued compared with the latter months of 2009, when there was a surge in interest owing to the final months of the temporary stamp duty "holiday".
But, even though that rush had "worked through" the system, house purchase approvals were still 20% higher than in March 2009.
The continued historically low UK interest rates - and as a result the low mortgage rates - have been seized on by homeowners looking to pay off their mortgages more quickly.
Mortgage rates are at low levels as competition picks up
The BBA said that banks were "actively encouraging" borrowers to use any surplus cash to reduce their borrowing.
"Homeowners are reducing mortgage debt by making, or maintaining, higher repayments using the extra cash generated by lower mortgage rates," said David Dooks, the BBA's statistics director.
Remortgaging continued the steady increase seen in recent months, but remained at very low levels, as people stayed on cheap standard variable rates rather than signing up to new fixed-rate deals.
However, various reports have shown that two-year fixed-rate mortgage deals are at their cheapest for 12 months.
Financial information service Moneyfacts said the average rate was 4.63% for a typical £150,000 repayment mortgage.
"The open for business sign is back in the window as lenders improve the availability of mortgages," said Michelle Slade, of Moneyfacts.
"Lenders are becoming more active in the mortgage market, which is welcome news for borrowers as increased competition is one of the overriding factors in driving rates downwards."
The best deals still required a 25% deposit, she said, which affected affordability for first-time buyers.
Loans and cards
Mr Dooks added that low interest rates also affected savings and borrowing which was not secured on people's homes.
"People are also holding more cash in their everyday accounts, rather than building up savings accounts and overall unsecured borrowing levels are standing still," he said.
There was a slight rise in credit card borrowing. Credit card use has increased, but the typical amount spent in every transaction has fallen.
Repayments on personal loans and overdrafts outstripped new borrowing - as has been the case for some months.
The BBA also said that businesses showed little appetite for borrowing - leading to a 5.7% annual drop in lending to non-financial companies by the major banks.
"Uncertainties in business trading are constraining company demand for finance, with large corporate sectors still seeing contractions in borrowing," Mr Dooks said.
The construction sector showed the biggest contraction, with borrowing 25% lower than a year ago.