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Despite the stabilisation, the BBA warned it would be premature to think the housing market was starting to recover.

The statistics for July showed high street banks saw mortgage lending rise by £4.3bn in July, the same as in June, but less than the £4.8bn six-month average.

Gross mortgage lending fell to £14.6bn in July compared with £15bn in June and was 25 per cent less than the same period last year.

The statistics also showed mortgage approvals were continuing to decline, falling from £12.7bn in June to £11.8bn in July.

The number of house purchase approvals continued to be very low, despite a slight increase of 22,448 in July compared with 22,369 approvals in June, while the number of approvals for remortgages fell from 58,624 in June to just 54,232 in July, 26 per cent less than in July 2007.

David Dooks, statistics director for the BBA, said: "The monthly numbers of approvals for house purchase, which have fallen by some two-thirds in the last year, levelled off in July.

"It would, however, be premature to think the housing market will now start to recover, because overall approval activity continues to be very low.

"The pressures on household budgets are reflected in the relatively weak rise in individuals' deposits and, with consumer borrowing growing only slowly, it seems consumers are acting prudently."

Oliver Gilmartin, senior economist for the Royal Institution of Chartered Surveyors, said while mortgage activity appeared to be stabilising the level of activity was not supportive of a near term pick up in house prices.

He said: "The driver of house prices in the near term will be the resilience of the economy and the outlook for the labour market both of which appear to be showing cracks.

"Few crumbs of comfort can be taken from recent signs that mortgage activity may have finally found a floor amid a backdrop of a stalling economy and expected rises in unemployment."

Justine Greening MP, shadow minister of the Treasury, said: "These figures show the extent of uncertainty in the housing market, which the chancellor has made worse by sending out confused signals over a stamp duty holiday."