The Council of Mortgage Lenders (CML) has hailed the end of the slump following the ending of the stamp duty holiday at the end of March.
Since the concession ended the mortgage market has gone flat with a lack of demand and a shortage of new properties on the market.
CML director general Paul Smee commented: "It is positive news for the market that the slump following the end of the stamp duty concession seems to have been short-lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year.”
The CML says house purchases increased substantially in May, up by 36 per cent compared to April and up by 29 per cent compared to May 2011.
Remortgage lending also increased by more than ten per cent from April, up to £3.5 billion from £3.1 billion, but down from May 2011 when there was an expectation interest rates might go up.
First-time buyer mortgages were affected most deeply by the ending of the stamp duty holiday and there was a recovery in this sector of the market, according to the CML.
18,100 new loans worth £2.3 billion were made in May compared to 12,700 loans worth £1.5 billion in April. This is a big increase but just takes first-time buyer levels back to the level they were at in the first half of 2011.
The CML concludes that after the distortions of March and April, the first-time buyer part of the mortgage market appears to be back to normal.
Mr Smee added that the euro debt crisis could impact the housing market. He said: "However, the problems in the Eurozone have not gone away. Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year."
Howard Archer, Chief UK & European Economist at IHS Global has not changed his view that house prices will decline by a further three per cent in 2012.
“While the CML data show a welcome pick up in housing activity compared to April, it is still very low compared to long-term norms and we seriously doubt that there will be any significant pick up in housing market activity in the near term.
“Specifically, we expect house prices to fall by around 3% over the second half of 2012.”
Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.