Mortgage lending by building societies fell slightly in April and was 60 per cent lower than last year, according to new figures from the Building Societies Association (BSA).

Mutuals lent £1,551 million in April 2009, compared to £1,571 million in March – and £3,921 million in April 2008.

Paul Broadhead, head of mortgage policy at the BSA, said: “The rate of decline in activity in the housing market may have started to slow, but overall the lending environment remains very challenging.”

Despite the small dip in mortgage lending, the number of mortgage deals approved by building societies increased by 14 per cent from March to April.

Saving balances held by building societies increased in April by £80 million, compared to £2,918 million in April last year. Societies experienced a net withdrawal of £811 million in April this year, compared to a net inflow of £1,823 million in April last year.

Brian Morris, head of savings policy at the BSA, said: “In the current low interest rate environment households are looking to repay debt rather than save.

“Competition for retail deposits has become more intense since the wholesale markets effectively closed to all financial institutions. However, building societies have accounted for almost half the increase in savings balances in the UK since the run on Northern Rock bank in September 2007 to the end of March 2009. This is because societies have offered attractive accounts and are trusted by savers.

“However, those banks that are supported by the State are able to compete unfairly for retail deposits, and steps need to be taken to ensure that Government backing for some institutions does not distort competition for savings.”