House prices rose by 0.9 per cent in September, re-tracing growth back to the levels seen this time last year.
This is the fifth monthly rise in a row, according to the Nationwide House price index but Nationwide cautions that low activity levels in the market is likely to hold back growth.
Compared to last year, price growth is down just –2.7 per cent, according to the index, but down 13.5 per cent since the market peaked in October 2007.
Martin Gahbauer, Nationwide's Chief Economist, said: “The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – rose from 3.3 per cent in August to 3.8 per cent in September, the highest level since August 2004.”
He added: “At GBP 161,816, the average price of a typical UK property was essentially unchanged from a year earlier, representing the first time since March 2008 that the year-on-year rate of change has not been negative. Over the first nine months of 2009, the seasonally adjusted index of house prices has risen by 4.1%.”
The Nationwide said the economic headwinds still prevailed, despite some cheering economic indicators.
“One reason to remain cautious about the outlook for house prices is that turnover in the market is still well below normal levels. The housing turnover rate – measuring the percentage of the private sector housing stock changing hands on an annualised basis – fell to only 3% at the end of 2008,” he said.
Gahbauer said although the turnover rate has since recovered to nearly four per cent, there is still quite some way to go before turnover reaches the pre-downturn level of between 7 and 8 per cent.
Michael White, chief executive of online mortgage advisers Email Mortgages.com, said: "To talk of an average UK house price is always something of a red herring given the UK is very much a regional housing market – some homeowners, for example, those in the London commuter belt, will have seen their property bounce back strongly since the large falls of last year, while others have only seen a slight house price recovery. One must expect that the recent house price increases, if they are to be maintained at all, will only be in very small increments and this will be the pattern for the foreseeable future."
White said the real issue for the UK housing market continues to be the low level of mortgage lending by the banks; a recent Bank of England Credit Conditions Survey for quarter three outlines what anyone working in the mortgage market has known for some time, that lenders have not increased lending to businesses or individuals as previously promised, instead lending has been cut. Given the small number of lenders currently active in the market it is therefore unsurprising that many potential house purchases are not going ahead because of the difficulty accessing mortgage finance; a particularly acute problem for first-time buyers."
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