Page last updated at 11:46 GMT, Thursday, 27 August 2009 12:46 UK

House prices 'continue to rise'

For sale signs in London
August is the fourth consecutive month Nationwide has reported price rises

UK house prices rose for the fourth month in a row during August, the Nationwide has said, climbing by 1.6%.

According to the Nationwide, the average price of a home is now £160,224, up from £158,871 in July.

While prices are still lower than last year, the annual rate of decline in property values slowed sharply to 2.7%, compared with July's 6.2% fall.

The Nationwide said a key factor in lifting prices was "the exceptionally low level of interest rates".

Rates have been kept on hold at 0.5% by the Bank of England since March.

'Bumpier' road ahead

The three-month on three-month comparison of property prices - considered a less volatile measure than the monthly data - showed a rise of 3.3% in August, up from 2.7% in July.

House prices

Nationwide's chief economist Martin Gahbauer said lower interest rates had given existing homeowners with tracker or standard variable mortgages a welcome breathing space.

"The fall in debt serving costs has meant that fewer homeowners are under immediate financial pressure to sell than might have been expected in a recessionary economic background with rising unemployment," he said.

Mr Gahbauer added that as a result, fewer second-hand properties had come onto the market "than is normally the case in recessions", which moved the balance of supply and demand "more in favour of sellers over the course of 2009".

At the same time, he said lower interest rates had improved the affordability of mortgages for first-time buyers.

However, he cautioned that when interest rates ultimately start to rise again as the wider economy recovers, the strong house price increases of recent months "would become difficult to sustain".

"The eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpier than some might expect after the last few months of price increases," said Mr Gahbauer.

The latest statistics from Nationwide appear to confirm that the housing market has finally bottomed out
Gary Smith, National Association of Estate Agents

However, Bank of England governor Mervyn King recently implied that interest rates could remain low for some months yet.

Reaction

Operators in the mortgage industry have also said that this is not the start of another boom.

"It is ironic that a strengthening of the broader economy could lead to a weakening of the housing market, which will in turn have a negative effect on the economy," said David Smith, of property consultancy Carter Jonas.

"It is encouraging to see such a rebound in prices, but bumpy recovery could turn out to be quite some understatement."

But Gary Smith, president of the National Association of Estate Agents, said: "The latest statistics from Nationwide appear to confirm that the housing market has finally bottomed out and indications are that we are hopefully moving to a point where the gradual recovery in prices witnessed this year will be sustained.

"As families now begin to perceive that with realistic prices, historically low interest rates together with the potential for capital growth, they will upgrade and move through the system bringing their own houses onto the market and boosting supply.

"However to ensure these aspirations are realised lenders have a huge role to play in the coming months."



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