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The amount of approved home-loans hit a 17-month high last month, which has sparked new claims that the housing market is emerging from recession.

Figures from the British Bankers' Association (BBA) showed that in July, banks approved 38,181 mortgages, up 2,617 compare to the previous month with 35,564, marking the highest number since February 2008.

The typical size of the average home loan rose by 1% to £139,700, reaching a total value £5.2 billion in July, up just over 79% compared with July 2008.

The data supplied by BBA provides a strong indication that the property market and house prices may have bottomed out and are now starting to increase again. Both Nationwide and Halifax reported at least a 1% gain in house prices in July, while the property website Rightmove.co.uk said last week that those looking to bag a bargain pushed its site traffic levels to a record high. The Countrywide estate agency group suggested that the market has seen a boost in confidence, as a fifth of homes are currently selling above guide price.

Allan Monks, from JP Morgan Chase Bank, said: "This is the highest reading on mortgage approvals since February 2008 and extends the recent steady uptrend."

However, the figures also revealed that households with high amounts of debt are repaying existing loans instead of building up further credit. Those with mortgages are choosing to repaying their loans at a faster rate, in an effort to make the most of the lowest interest rates in history.

The BBA also revealed that the total amount of new spending on credit cards has fallen by 9% compared to last year. The demand for personal loans is also down 39% and bank overdrafts receded by 3.2% compared with 2008.

The association went on to add that British households paid back £200 million of debt last month, while also increasing their bank deposits by £2.5 billion.

These figures are partly reflective upon a new breed of thriftiness that has come after years of irresponsibly building up debt, but also as a result of lenders tightening up on acceptance criteria making it more difficult to obtain credit, with lenders turning away as many as half of all applicants. Despite the lowest Bank of England base rate on record, interest rates on loans and credit cards have increased considerably in the wake of the credit crunch.

Many economists have suggested that the ongoing shortage of available finance, plus the continuing increase in unemployment, could wipe out any signs of recovery in the property market.

Brigid O'Leary, a senior economist at the Royal Institution of Chartered Surveyors, said the figures reflecting the levels of approved mortgages, while "encouraging, do not disguise the fact that the housing market is still in a fragile state and that mortgage activity is still limited". O'Leary added: "Lenders have suggested that demand for fixed-rate products is exceeding their capacity to fund them but, for many borrowers, the limited number of, and high premium on, high-value loan-to-value products may also be preventing them from entering the market," she added.

Ray Boulger, of the mortgage lender John Charcol, said that a significant number of building societies had substantially reduced lending, as a result of capital constraints laid down by the Financial Services Authority.

"We will see transaction levels in the property market remaining low for some time to come. But supply and demand are still tight, so I expect prices to end the year up 5-6%."

"Bizarrely, the longer the recession goes on, the longer interest rates will remain low, therefore supporting the market. It's when interest rates rise that house prices may come under pressure," he said.

The director of propertyfinder.com, Nicholas Leeming said: "Buyers are champing at the bit to take advantage of attractive house prices, but the banks, awash with vast sums from the government and Bank of England, are suppressing new lending and encouraging borrowers to repay existing loans. Without a concerted effort from lenders to provide more assistance to homebuyers by providing finance, the recovery in the housing market is likely to be drawn out and painful."