House prices have recorded their biggest monthly rebound in more than two-and-a-half years, the Nationwide said today.
Prices rose by a "surprising" 1.3% month-on-month in August to reach £164,729 on average, reversing declines recorded over the previous two months and marking the biggest monthly increase since January 2010, the building society said.
However, prices are still 0.7% lower than they were a year ago and the market remains volatile against the tough economic backdrop.
Recent house price studies have highlighted the difficult and unpredictable nature of the market, often with strong regional variations.
Property analyst Hometrack predicted earlier this week that prices will come under downward pressure for the rest of the year due to relatively weak buyer demand compared with the number of homes on the market.
Analysts have said they have seen little evidence so far that a recently-launched funding for lending scheme by the Bank of England and the Treasury has done much to increase the availability of mortgages for people with lower deposits and first-time buyers, with the choice available shrinking back over the last six months.
The scheme has not stopped Nationwide and Santander announcing some increases to their mortgage rates.
In an indication of what is to come, Bank of England figures published yesterday showed that mortgage approvals increased slightly in July compared with an 18-month low recorded in June.
Robert Gardner, Nationwide's chief economist, said: "Given the difficult economic backdrop, the extent of the rebound in August is a little surprising.
"However, we should never read too much into one month's data, especially since monthly price changes have been impacted by a number of one-off factors this year, such as the ending of the stamp duty holiday for first time buyers."
He said the fact that the annual decline has slowed down from a 2.6% drop recorded in July provides some evidence that the market is "fairly stable".
Mr Gardner said: "This may be explained by the surprising resilience evident in the UK labour market, with further increases in employment in recent months, even though the UK economy has remained in recession."
Mr Gardner said that the future of the housing market will be strongly affected by what happens in the labour market.
He said: "House prices are expected to remain fairly stable over the next two years, while incomes are likely to continue to rise gradually, which will also help to support affordability."
Nationwide highlighted the "marked differences" between today's market, where the average first-time buyer needs to raise a 20% deposit, compared with conditions between 2005 and 2007, when a 10% deposit was typically put down.
The number of mortgage approvals is running at around 50,000 a month, roughly half the level between 2005 and 2007.
For those who manage to get on the property ladder, low interest rates and house price falls mean that monthly repayments for a first-time buyer with a 20% deposit have declined to around 29% of take home pay typically, down from 40% before the financial crisis struck, Nationwide said.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies