House prices shrug off the crisis but mortgage rates will eventually hit home

UK house prices continued to move upwards in September, despite the Northern Rock crisis and the turmoil in international money markets, Nationwide. building society has reported.

Overall, UK prices were up 0.7 per cent in September. The average house is now worth £184,723.

But Nationwide added that the annual rate of property inflation slowed slightly in September, to 9 per cent from 9.6 per cent the previous month. The five rises in interest rates since August 2006 were cited as the key reason for this.

Nationwide said there was no sign yet of confidence in the housing market being damaged by the problems at Northern Rock and the continued talk of a credit crunch.

But longer term the picture may change. Fionnuala Earley, Nationwide's chief economist, warned that the credit crunch – with banks having to pay more to borrow off each other – was leading to rising mortgage rates, which in turn may hit house prices.

"Higher wholesale funding costs are now clearly leading to a reassessment of the pricing of credit in the mortgage market," said Ms Earley.

"As expected, this has not had an immediate impact on house prices, but the longer-term effect will undoubtedly be to take some of the froth out of the market."