Page last updated at 10:38 GMT, Friday, 2 October 2009 11:38 UK

House prices 'back to 2008 level'

Nationwide's Martin Gahbauer: "I think the rate of increase is going to slow down"

UK house prices have now recovered to the same level as a year ago, according to the latest figures from the Nationwide.

The average price of a home last month rose by 0.9% to £161,816, almost identical to September 2008.

The building society said house prices had now risen for five months in a row.

However, the nation's homeowners continued to pay off more of their mortgages between April and June, according to the Bank of England.

A further £7bn was added to people's equity in the country's housing stock, as homeowners accelerated the repayment of their home loans, or put down bigger deposits when taking out a new mortgage.

An extra £29bn has now been added to the value of their stake in the UK's housing wealth since the summer of 2008, a process triggered by last year's sudden slump in house prices.

graph shows uk house prices since January 2007

The further injection of equity has partly reversed the previous trend, which saw home owners cashing in on the rising value of their properties by expanding their mortgages to finance other spending.

More than £300bn was borrowed this way between the start of the decade and early 2008.


It doesn't matter if it's gone up or down a little bit, it's still a lot more expensive than it was five years ago
Valkyrie woody, Burton on Trent

The Nationwide warned that the recent house price increases were unlikely to continue at their present rate, especially if more properties come on to the market.

"The most intense phase of the recession and financial crisis has probably passed," said Martin Gahbauer, the Nationwide's chief economist.

"However, given that the housing market still faces considerable headwinds in the form of high unemployment, restrictive credit conditions and an impending withdrawal of the stamp duty holiday, it would be surprising to see house prices continuing to increase at the very strong rate seen in recent months," he added.

Figures from the financial information company Moneyfacts show that mortgage rationing is still in full force.

The number of mortgage deals available with between 0% and 40% deposits rose by just 4 in the last month, to 1,290.

Of these, the proportion requiring at least a 25% deposit has gone up up from 64% to 66%.

By contrast, as late as December last year, only 43% of the deals needed such a large down payment.

In addition, there were still 402 mortgage offers that needed only a 10% deposit - now there are just 101.

Remaining cautious

The Nationwide said price rises had been particularly vigorous in the past few months.

In the three months to September they rose by 3.8% compared to the average level in the previous three months - the biggest rise on this measure since August 2004.

The more fundamental reason why prices might start falling again is that, by most measures, they are still significantly over-valued
Stephanie Flanders, BBC economics editor

Mr Gahbauer said another reason to remain cautious about the outlook for house prices was that turnover in the market was still well below normal levels.

The Nationwide calculates that housing turnover - the percentage of private sector housing stock changing hands on an annualised basis - now stands at almost 4%.

This is still significantly lower than the rate of between 7% and 8% recorded before the downturn in the housing market.

David Smith, of property consultancy Carter Jonas, said anyone hoping to sell now had a "window of opportunity" that might soon shut.

"We have to expect more turbulence ahead, specifically as a result of rising unemployment and interest rates," he said.

"This toxic combination will bring more property on to the market as people struggle to meet their repayments, which will apply downward pressure on prices and potentially reverse the recent trend, at least for a time," he added.

'Accidental landlords'

Another factor that might depress house prices again would be if "accidental landlords" now decided to sell their homes instead of letting them to tenants, the Nationwide said.

"The downturn in housing turnover over the last two years has prompted many home movers to let their old properties out rather than sell," said Mr Gahbauer.

"The surge in so-called 'accidental landlords' has limited the supply of property in the sales market and increased the stock of homes available to let.

"Over recent months the increase in 'accidental landlords' seems to have tapered off, which may indicate that some of this elevated rental supply is returning to the sales market, with possible negative implications for house prices," he said.

The Royal Institution of Chartered Surveyors (Rics) agreed.

"The recent turnaround has been surprisingly strong," said Brigid O'Leary, an economist at Rics.

"An increase in property for sale would improve transaction levels but could also put some renewed downward pressure on house prices," she added.

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