House prices still rising

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The rise, which was well up on the previous month's increase of 0.1%, pushed average house prices up to £183,898, according to Nationwide Building Society.

But the annual rate of house price inflation continued to slow during the month, dropping slightly to 9.6%, down from 9.9% for the year to the end of July, further contributing to growing evidence that the market is coming off the boil.

The figures come the day after the Land Registry said house prices in England and Wales edged ahead by just 0.1% during July.

Nationwide said the recent stock market volatility caused by the crisis in the US sub-prime mortgage market was unlikely to impact on UK house prices in the short term.

But it added that it still expected the market to slow down as affordability became increasingly stretched as a result of recent strong house price growth.

At the same time, it said, higher interest rates and inflation would also hit people's pockets, while lower expectations of house price growth were likely to dampen demand.

The group still expects house prices inflation during 2007 to be close to the middle of its forecast range of 5% to 8%.

Fionnuala Earley, Nationwide's chief economist, said: "While it has taken some time for these factors to bite, there are now clearer signs of slower demand in the market reflected in the collapse in new buyer inquiries. In addition, the stock-to-sales ratio, which leads house price inflation by five to seven months, predicts a continued slowing in the annual rate of house price inflation."

But she warned that the fall-out from the US sub-prime crisis could have a more severe impact on the housing market during the longer term if it took a while for the market jitters to calm down.