First home buyers are heading back to the market in droves, new figures suggest.

The AFG Mortgage Index for October has shown a 40% spike in first homebuyer activity for the month, with first time buyers comprising 16.4% of all loans processed by the aggregator. The result represents the largest first homebuyer participation since September 2009.

First homebuyers were most active in NSW, accounting for 21.1% of all loans. Queensland and WA also saw strong first homebuyer participation, at 17.9% and 17.3%, respectively.

Fixed rate loans have also seen an uptick during the month, comprising 20.4% of all loans processed. The numbers echo those released by Mortgage Choice, which showed fixed rate products represented nearly 20% of all the broker's approvals for October.

AFG general manager of sales and operations Mark Hewitt commented that competitive discounting among lenders helped to woo first homebuyers back to the market.

"Buyers are reaping the benefits of one of the most competitive mortgage markets we've seen in years. Discounted fixed rate loans appealed to all buyer types, but especially first home buyers and those looking to refinance. We have been slightly surprised with the popularity of fixed rates given it has been generally predicted variable rates would decrease and we would now expect the proportion of fixed rate loans to fall, following the cut in variable rates announced [this month]. Non-major lenders are doing increasingly well in this environment and hopefully [the RBA rate cut] will further support a market recovery which is still in its very early stages," Hewitt said.

Non-majors saw their best share of the mortgage market than at any time over the past year. Deals from non-major lenders represented 21.1% of all home loans. The lenders proved even more popular with first homebuyers, accounting for 30% of first time buyer loans. Investors were also active in the market, with investment loans comprising 35.6% of all new mortgages.