House prices record first annual rise in 19 months

But month-on-month rises have slowed, says the Nationwide building society

Homeowners received mixed news yesterday when the Nationwide said house prices were now higher than they were a year ago – the first annual increase in 19 months – but warned that the rate of growth had started to slow.

Its figures showed that property prices rose by 2 per cent during October compared to the same month last year, signalling the first annual rise since March 2008. The average British house is now worth £162,038.

Prices rose by 0.4 per cent between September and October, the mortgage lender added, but the monthly increase was the smallest for six months.

"On the whole, homeowners should be happy with the numbers," said Nationwide's chief economist, Martin Gahbauer. "I would not say the market is particularly healthy, but at the beginning of the year there were few economists predicting house prices would be at this level by October.

"The overall number of transactions is still low, however, and prices are still vulnerable to increases in supply."

The increase is the sixth straight jump but strong momentum over the summer has given way to more modest improvements this autumn. Average property values rose by 0.9 per cent between August and September, compared with 1.4 per cent between July and August. Mr Gahbauer added: "If you annualise that over 12 months, the market would be increasing by 15 per cent and that clearly is not sustainable."

Many economists prefer quarterly comparisons, but the three-month data also suggest prices increases are tailing off. In the three months to October, values were up only 3.4 per cent, compared with a rise of 3.8 per cent in the three months to September.

Mr Gahbauer said the annual rise could encourage potential sellers who had been waiting for an up-tick in prices before putting their properties on the market. With mortgages still difficult to secure, that could in turn lead to a drop in asking prices.

Howard Archer, the chief UK and European economist at IHS Global Insight, also warned that homeowners could be in for a tough 2010, with prices expected to fall.

"While the Nationwide data indicate that house prices are still on an upward track from their February low, October's significantly reduced month-on-month increase fuels our suspicion that the recent rally in house prices is unsustainable and will fizzle out before long.

"We believe house prices will be at least 5 per cent lower at the end of 2010 compared to now, and the slippage could very well be greater still."

Last week's announcement of an unexpected slump in gross domestic product over the third quarter also had implications for the housing market, Nationwide warned, with rising unemployment and a long period of subdued wage demands limiting recovery.

House prices in numbers

2%

The year-on-year increase in house prices in Nationwide's October figures. The first annual rise since March 2008

£162,038

The average price of a house in the UK in October, up from £161,816 in September

0.4%

The month-on-month increase in house prices between September and October

0.9%

The month-on-month increase in house prices between August and September