Gross mortgage lending reached £20.4bn in December, according to the Council of Mortgage Lenders.
This was 4 per cent less than in November but 4 per cent more than in December 2015.
It brings the estimated total for the year to £246bn, a 12 per cent increase on 2015’s £220bn and the highest annual gross lending figure since 2008.
Mohammad Jamei, CML senior economist, said: “The UK housing market, much like the wider UK economy, ended 2016 on a generally positive note.
“Approvals for house purchase have recovered strongly of late, and this should feed through to lending figures in the early months of 2017.
“The current availability of mortgage credit is benign, and the real issue continues to be a dearth of properties on the market, which adds to the challenges facing would-be buyers.
“Uncertainty associated with political factors and prospective changes to the tax treatment of landlords will weigh on prospects for the year ahead.”
Gross mortgage lending for the fourth quarter of 2016 was an estimated £62bn.
This was a 3 per cent decrease on the third quarter and closely matches the £61.8bn for the fourth quarter of 2015.
Mr Jamei said buy-to-let and cash transactions both saw a big jump in March, just before the 3 per cent stamp duty surcharge on second properties came into effect.
He said: “This pushed up home mover activity too, as a portion of chains had buy-to-let landlords in them and were sped up to complete before the deadline.
“In the months immediately after the change, the flipside was that activity levels were weak.
“Given this distortion, it became more difficult to say what impact the EU referendum in June had on the market.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "2016 turned out to be an encouraging year for the mortgage market, despite significant headwinds created by the increase in stamp duty for landlords and second homeowners in April and the uncertainty surrounding the referendum.
"Record low mortgage rates were responsible for this resilience, with many borrowers remortgaging to take advantage of the lowest rates ever while first-time buyers were able to take advantage of an increase in the number of high loan-to-value deals.
"Moving into this year, Swap rates have settled down since the beginning of January and several lenders have announced competitive deals on the back of these. HSBC, Barclays and Aldermore have all launched cheaper rates this week and an appetite to do business among lenders shows no signs of abating.
"This is particularly good news for those borrowers who require a straightforward ‘vanilla' mortgage but we would like to see more tweaking of criteria and innovation to make it easier for other groups such as older borrowers and the self-employed to access mortgage finance rather than just cheaper rates."
Stephen Smith, director of Legal & General Housing Partnerships, said sentiment across the mortgage market is positive.
He said: "With the government’s housing white paper imminent, many in the industry will be focused on how we can ensure lending levels continue last year’s strong performance by improving affordability and increasing fluidity across all levels of the housing market.
"Not only do we need to see significantly more homes being built every year to redress the supply/demand issue, but we also need to eliminate some of the barriers to moving that are currently preventing existing housing stock from coming back on to the market."
damian.fantato@ft.com
