Prices had risen during July when the average cost peaked at 5.21% by the end of the month.

The financial information service suggested that competition was now increasing among home loan providers.

However, the cost for those homeowners looking to fix their repayments over a longer period has continued to rise.

“Swap rates have been falling over the last few weeks, but mortgage rates on medium-term deals are yet to follow suit,” said Michelle Slade of Moneyfacts.

“Borrowers will be hoping the easing of credit criteria continues and that lenders will start to reduce the large margin for risk they have been taking over the last year.”

She said that there were signs that the worst of the squeeze for mortgage borrowers could be over, after many potential owners – especially first-time buyers – found that they have had to offer a large deposit.

“Borrowers are finally starting to see more positive news coming out of the mortgage market,” she said.

“Lenders have become accustomed to the post banking-collapse world and appear to finally be relaxing their credit criteria.”

Separate research by price comparison website Moneysupermarket.com has found that people are still reverting to their lender’s standard variable rate (SVR) instead of remortgaging.

Consequently SVR rates have risen, and now stand at an average of 4.7%, according to the website’s figures.

“Borrowers need to be aware that lenders are free to price their SVR as they please,” said Hannah-Mercedes Skenfield, of Moneysupermarket.

The latest data on mortgage lending by the major banks will be published on Tuesday.

The HBF’s survey of the UK’s major home builders found sixty percent of those asked had seen an increase in sales when compared to the same period last year.

The Home Builders Federation says the industry has been through the economic equivalent of a tsunami, with an estimated quarter of a million construction jobs lost in the last 12 months. The MBF goes on to say that the biggest obstacle to recovery is now the availability of mortgages or lack of.

Chancellor Alistair Darling is to meet with the banks next week to remind them of their legally-binding obligation to lend more money to homebuyers.

Steve Turner, spokesman for the HBF, said the survey results were a welcome boost.

“It’s been a very difficult year, but what we are starting to see is a consistent set of modest but positive results now in terms of visitor levels, in terms of reservations.

“I think for the first time in a number of months the industry is starting to feel more positive.”

However, experts were warning that the industry was still fragile because although new home sales had increased, they were at an extremely low level last year.

However, come April and it was back to bad news. In April, UK House prices fell by 0.4%, reversing some of the rise seen in March, (according to data supplied by the the Nationwide).

The Nationwide’s figures show that the pace of decline in house prices slowed, but the typical home still cost 15% less than a year ago. The price of the average property in the UK was £151,861 in April.

Figures from the Land Registry relating to March, also published on Thursday, showed different price shifts in different parts of England and Wales. The figures suggested typical property prices rose by 1.8% in the North East of England in March compared with February, but fell by 2% in the same period in the West Midlands.

The Nationwides’s Figures showed that prices fell 3.1% in the quarter to the end of April, compared with the previous quarter.

This was less of a decline than than the 4.1% fall, using the same measure, seen a month ago.

The building society surprised many homeowners last month when it announced that prices rose by 0.9% in March compared with February.

But it warned at the time against reading too much into the change, saying that it was not a sign that the market had turned.

In a speech a week ago, Matthew Wyles, chairman of the Council of Mortgage Lenders (CML), said that the mortgage market remained “highly dysfunctional” and that 2009 would be a tough year.

Thebritish pound has dropped back below $1.40 to a 6 week low, as confidence in the UK economy took yet another knock following falls in bank shares.

The pound was down almost four cents at $1.3776. Sterling touched its lowest levels in 24 years in mid-January, nearing $1.35.

UK financial shares fell in Monday trading after the government increased its stake in Lloyds Banking Group.

Against the euro, the pound was down over two cents at 1.0927 euros.

Shares in Lloyds fell more than 10%, before recovering during afternoon trading to end the day up 4.1%.

Barclays lost 13% before bouncing to end down 5.3%.

Other banking stocks among the day’s biggest losers included HSBC, down 3.3%, and RBS, which fell 4%.

“What’s going on in UK shares at the moment is putting pressure on sterling,” said Geraldine Concagh at AIB Group Treasury.

She added that the Bank of England’s programme of quantitative easing will put further downward pressure on sterling.

The taxpayer will soon own 65% of Lloyds Banking Group – up from

Under an agreement with the Treasury, the government’s stake will increase from 43% to between 60% and 65%.

Some £260bn of toxic loans will be insured, and Lloyds will be required to lend more to households and companies.

The deal was agreed on Friday night, but there are some legal formalities to be concluded. It is understood it will be formally announced on Saturday.

Reports said Lloyds had been unhappy to give the government a majority stake.

Hugh Pym, BBC chief economics correspondent, said the government’s voting stake could rise as high as 65% – although with other types of share taken into account, its interest will, in effect, be 75%.

Our correspondent added that the deal would be “very awkward” for the Lloyds chief executive Eric Daniels and chairman Victor Blank.

They have come increasingly under fire from shareholders for their decision to buy rival HBOS.

It was the January takeover of HBOS – a move that was supported by the government – that has caused the problems at Lloyds.

Lloyds was forced to announced last week that HBOS made a pre-tax loss of £10.8bn in 2008, which it has had to absorb.

By contrast, Lloyds, or Lloyds TSB as it was then known, made a profit of £807m last year, albeit an 80% fall on 2007.

George Osborne, the shadow chancellor, said the government’s latest move was proof that the first bailout had failed, and the test of it would be whether credit began flowing into the economy again.

“It is also clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership,” Mr Osborne added.

The £260bn insurance deal is part of the Treasury’s taxpayer-backed Asset Protection Scheme to insure banks’ riskiest assets against further losses.

It was put forward by Chancellor Alistair Darling in a bid to restore confidence in the banking sector.

Royal Bank of Scotland was the first bank to sign up, announcing last month that it would ask the government to insure £325bn worth of so-called toxic assets, which are difficult to value and currently cannot be sold.

Mortgage approval levels hit 23,376 last month, up 4% from 22,416 in December, the British Bankers’ Association (BBA) said.

However, the number of approvals in January was still 43% lower than the same month a year earlier.

The total net value of mortgage lending last month was £2.9bn, down from £3.3bn in December.

The latest figures from the BBA come after a number of reports have indicated the extent of the housing downturn.

Last week, the Council of Mortgage Lenders said the number of UK homes repossessed in 2008 rose by 54% to 40,000.

Meanwhile the Land Registry – widely seen as the most authoritative guide to the market – said house prices in England and Wales fell by 13.5% in 2008.

Prices also continued to fall in January according to both the Royal Institution of Chartered Surveyors (Rics) and the Nationwide, although the Halifax said property values rose slightly in January.

The prominent group of Labour members – Progress, is calling for a freeze on stamp duty on houses valued under £1m for the rest of 2009 and the offer of a £1,000 tax credit to home buyers.

It also wants to see capital gains tax cut and Jobseeker’s Allowance raised.

Former MP Chris Leslie, who is behind the proposals, argues consumers could help the UK out of the economic slump.

Progress, an independent group made up of Labour Party members and trade unionists, promotes modernising ideas and policies.

Mr Leslie, a friend of Prime Minister Gordon Brown, says 2009 should be the defining year of the recession and argues prompt activity by investors and consumers could kick-start the economy.

As well as a stamp duty holiday for properties worth up to £1m, he recommends cutting the capital gains tax rate on new investments from 18% to 10%.

He also wants Jobseeker’s Allowance to be increased by £10. Current payments range from £47.95 to £94.95 a week, depending on age and status.

The paper by Progress recommends a combination of “£12.5bn of additional support and tax reductions stretching to all sectors across the economy”.

It also encourages the chancellor to add “a further £7.5bn in capital infrastructure investment in the current spending review period”.

Mr Leslie said: “The ideas we suggest are designed to ‘define’ 2009 as the bottom of the recession.

“Doing nothing would cost us all dear in the long run. Injecting money into the economy in 2009 will allow the country to return to growth more quickly than if we let the market continue to spiral downwards, which would lead to even greater budget deficits in the longer term.

“We hope that the chancellor will look seriously at these ideas but we are under no illusions about the difficult task he faces in an era of global recession and international credit dysfunction.”

On Wednesday, the prime minister said Britain was working with world leaders towards a “global deal and grand bargain” to deal with the economic downturn ahead of the G20 economic summit in London in April.