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Nationwide reports further house price rises
By Rebecca Atkinson
House prices have risen for the fourth consecutive month, with Nationwide reporting a 1.6% uplift in values during August.This positive summer performance means that the annual rate of house price falls has now slowed from -6.2% to -2.7%. The building society says low interest rates have helped underpin prices, but warns the recent property market recovery will be hard to sustain once rates start to increase.Key findings:* The price of a typical house rose by 1.6% in August* Average house prices increased by 3.3% between June and August - the highest rise since February 2007* The first eight months of 2009 have seen prices rise by 3.2%* The typical property is now worth £160,224 - down 2.7% from August last year and 14.4% from the peak in October 2007The fact that the Bank of England base rate has been just 0.5% since March this year is one of the key factors helping to bolster house prices during the summer months. This has not only reduced the cost of new mortgages and remortgages, but also taken some financial pressure off existing homeowners.According to Nationwide, before the central bank started to cut the base rate, the average homeowner spent 38% of income on mortgage payments this has since fallen to just 28%."This has meant that fewer homeowners are under immediate financial pressure to sell than might have been expected in a recessionary economic background with rising unemployment," explains Martin Gahbauer, chief economist at Nationwide."Partly as a result, fewer second-hand properties have come onto the market than is normally the case in recessions, which has contributed to moving the balance of supply and demand more in favour of sellers over the course of 2009."Despite the housing market undergoing a reversal of fortune of late, is it unclear whether a full recovery can be sustained. Restricted mortgage credit is still a major barrier to homeownership and to people who wish to move up the ladder, and property experts say house prices cannot fully recover until mortgage lending increases.Housebuilder Persimmon Homes (PSN) recently warned that it remains "understandably cautious" about the outlook for the property market, with the pace of recovery dependent on the availability of mortgage finance.A number of other factors, including unemployment and a rise in the number of homes being put up for sale, also look set to threaten a recovery.But the real danger could come when the interest rate starts to rise, warns Gahbauer."At the moment, a rise in interest rates is probably still some way off," he adds. "However, the eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpier than some might expect after the last few months of price increases."Ed Stansfield, property economist at Capital Economics, says: "The bigger picture is that the weak economic outlook, with falling employment and slowing rates of average earnings growth, hardly seem conducive to a housing market recovery, while all the evidence suggests that the market remains overvalued and that house prices have significantly further to fall."
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