The housing market continues to be a vital engine for economic growth with gross mortgage lending in October reaching its highest level for five years.

According to The Council of Mortgage Lenders (CML), lending increased to £17.6 billion in October which was 37% higher than the same period last year.

October’s figure also represented the highest monthly estimate for gross lending since October 2008 (£18.6 billion).

The increase in mortgage lending forms part of continued positivity for the UK economy.

A report from the Office of National Statistics highlighted GDP growth of 0.8% for the third quarter which puts the UK on track to grow by almost 1.5% in 2013.

The number of people out of work has fallen to 7.6% of the active population and inflation dropped from 2.7% to 2.2% in September.

The Bank of England attributed the turnaround to better credit conditions and less uncertainty supporting domestic demand in its latest inflation report.

Bob Pannell, the CML’s chief economist, does not expect the Bank to move quickly to raise interest rates once the UK passes the 7% unemployment threshold.

He said: “It is clear from the inflation report that the Bank sees the housing market as providing a vital engine of economic growth.

“This mostly comes through housing investment, and especially new build activity. The Bank sees stronger housing activity contributing about 1 percentage point to annual GDP growth over the next year or so.

“Housing activity is set to strengthen further in the short-term, and to contribute materially to overall economic growth.

“Combined with the Bank of England’s recent optimism about the economy, this has led some commentators to speculate that an early rate rise may be on the cards. We do not currently share this view.”