CML, the Council of Mortgage Lenders has downgraded its forecasts for the year by £10 bn to £140bn after finding less confidence in the second half of the year than previously thought.
So far, the amount of lending has increased month on month up 19 pct on May as the CML said: "This is now the 12th consecutive month in which lending has been higher than its year-earlier levels," said Paul Samter, CML economist.
"But we expect house purchase activity to be muted in the coming months." he added.
The number of fixed rate mortgages also increased as the CML said that 48 pct of borrowers had taken on the 'safer' loans - the highest proportion so far this year.
The two year fixed rate of 3.24 pct - such as those offered by Abbey - are low enough for new home buyers to feel protected from any short-term hikes in interest rates - In the second quarter as a whole, £19.7 bn of new loans were issued - an increase of 20 pct in both volume and value on the first quarter.
"For the time being, the effects of the government spending cuts have yet to make a impact on mortgage demand, and activity continues on its upward trajectory," said Paul Samter, economist at CML.
"But we still expect house purchase activity to be muted in the coming months. Both consumer demand and lending capacity remain distinctly difficult to call." he added.
The news also included a boost for the banks after mortgage arrears and home repossessions appear to be on the mend after the Bank of England warned that tight credit conditions are hampering the recovery.
By the end of June, the number of loans with arrears were 178,200 - five percent lower than March and 17 pct compared with last year.
Repossessions fell as a result to 9,400 in the most recent quarter. The number has peaked at 12,100 now and the CML says that it has reduced its forecast of homes to be repossessed this year, down from 53,000 to 39,000.
"We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work." added Director General Michael Coogan of CML which represents 94 pct of all banks and building society's that offer residential mortgages in the country.