Figures from the British Bankers’ Association also showed gross mortgage lending of £8.3bn in March 2012 - 6.1% higher than in March a year earlier but in line with the recent six month average.
Although capital repayment by householders remains at a high level net mortgage lending increased by £0.9bn in March.
In February and March house purchase approvals dropped back to more normal trend levels after some increases earlier in the year as first-time buyers, sought to buy before the stamp duty exemption ended in March.
The average house purchase mortgage (£155,500) was 2% higher than a year earlier. Figures for 2012 are not directly comparable with last year due to a change in reporting.
Numbers of remortgaging approvals rose slightly in March. Approvals for other secured lending in March remained at a low level, being 11.1% lower than in March 2011.
Meanwhile unsecured lending contracted by 1.2% over the 12 months to March, while personal deposits rose by 3.8%.
BBA statistics director, David Dooks, said: "The high street banks are currently providing nearly £1.5tn of credit to UK businesses and households and they continue to lend.
“However, in response to the economic climate, larger companies are raising funds from bonds and SMEs are paying back more than the new borrowing they are taking.
“Deposits held on accounts are also higher than loans outstanding. All of this means that, while banks have funds to lend, demand for business credit is low.
“The high street banks are also helping individual customers by providing £768bn for house purchase and £82bn in unsecured credit although, as with business, demand is low and people are repaying their borrowing where possible."
Ed Stansfield, chief property economist at Capital Economics, said: “March’s drop in mortgage approvals gives further weight to the idea that housing demand at the turn of the year was artificially boosted by the stamp duty holiday.
“If extended, March’s rise in consumer confidence would offer hope of a revival. But that seems unlikely with the economy now seemingly back in recession.”
