By Jason Douglas and Jon Sindreu

LONDON--Lending to U.K. homebuyers increased in June by the largest amount in seven years and new mortgage approvals rose, signs that activity in the housing market is picking up.

Mortgage lending rose by 2.6 billion pounds ($4.1 billion) in June, net of repayments, compared with a rise of GBP2.4 billion a month earlier, the Bank of England said Wednesday. That was the largest monthly increase in net mortgage lending since July 2008.

Banks and building societies also approved 66,582 new home loans in June, compared with an average of 62,971 over the last six months.

A pickup in the housing market should help drive economic growth this year, although it may reignite concerns that Britons are at risk of taking on too much debt, particularly as house-price growth continues to outpace gains in earnings.

Unsecured consumer borrowing also rose in June, net of repayments, by GBP1.2 billion.

By contrast, lending to businesses continued to shrink. Loans to nonfinancial firms in Britain fell by GBP5.5 billion in June, the BOE said, the biggest monthly fall since comparable records began in 2011. Data show firms are flush with cash and are increasingly tapping capital markets to finance investment.

Write to Jason Douglas at jason.douglas@wsj.com and Jon Sindreu at jon.sindreu@wsj.com