The banks’ net mortgage lending grew by 0.5% in the year to September, according to the British Bankers’ Association (BBA).

BBA statistics director, David Dooks said: “The continuing economic uncertainties both in the UK and in the Euro area are having a dampening effect on activity within firms and households.

“Households are reducing borrowing requirements and have no appetite to take on more/new debt. Where they can individuals are putting money aside for household expenditure. Firms are holding back on borrowing for investment until trade prospects improve.”

David Brown, commercial director of LSL Property Services, said the small rise in lending couldn’t mask the “underlying weakness” in the overall mortgage market.

He said: “Lending is still below the level of a year ago, and the reduced number of would-be buyers able to secure the finance they need is stymieing the national housing market. With Funding For Lending only officially launched in August, September was too soon to judge its effect on the number of house purchase loans, but all eyes will be on its impact in the coming months to see whether it substantially boosts the number of first-time buyers and eases demand for rented accommodation.

“Remortgaging has been especially subdued, despite several lenders raising their SVRs in recent months. With the stuttering economy, a rise in interest rates is a distant prospect, and so borrowers with tracker deals have had less incentive to shop around.”