House prices have stabilised, says Halifax

The latest increase follows one of 0.7% in July and reverses most of the falls seen during the previous three months, leaving house prices at a similar level to the end of last year, Halifax said.

The group said activity in the market had been "largely static" since the start of 2010, enabling house price inflation to cool, after prices were pushed up during 2009 by a shortage of supply.

It added that it expected house prices to end the year at around the same level they started it.

The figures contrast with statistics reported by Nationwide last week, which showed that house prices had fallen by 0.9% during August, following a drop of 0.5% in July.

Data from the Bank of England also showed that only 48,722 mortgages were approved for house purchase during July, a level that economists consider to be consistent with house price falls.

The gloomy figures caused some commentators to predict that the housing market was heading for a double dip, with one economist warning that prices could fall by as much as 25% between the start of this year and the end of 2012.

But others said the recent dip in house prices was not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.

Martin Ellis, Halifax housing economist, said: "The market is broadly stable, with house price inflation having cooled since last year when supply shortages helped to push up prices.

"The improved economy, strengthening labour market and low interest rates are all supporting housing demand.

"We expect that UK house prices will remain static overall in 2010."

But others are less optimistic, pointing out that the lack of mortgage finance is limiting the number of buyers able to enter the market.

Many potential buyers have also adopted a "wait and see approach" due to concerns about the state of the economy, job security and the impact of future tax rises.

Halifax said annual house price inflation had fallen slightly to 4.6% during the three months to the end of August, compared with the same period a year earlier - the third consecutive month during which it has declined.

The average home now costs £167,953, 9% above the low reached in April last year, but still 16% below the August 2007 peak.

* www.homesandproperty.co.uk