According to Nationwide’s latest House Price Index, house prices rose by +1.3% in July meaning the average price of a house is now £158,871 compared to June’s £156,442.

Martin Gahbauer, Nationwide’s chief economist, said: “The three-month on three-month rate of change, generally a smoother indicator of the near term trend, rose from 1% in June to 2.6% in July, the highest level since February 2007. House prices are still -6.2% lower than 12 months ago, but this represents another sharp improvement from the -9.3% year-on-year decline in June.

“Even if prices were to remain unchanged for the rest of 2009, the year-on-year rate would continue to improve since prices were falling very sharply in the second half of last year. For the first seven months of 2009 as a whole, prices have risen by a cumulative +1.3%, suggesting there is now a reasonable chance that prices could end the year slightly higher than where they started. Only a few months ago, such an outcome would have appeared unthinkable.”

Nationwide’s data is based on its lending data for properties at the post-survey approval stage.

Simon Rubinsohn, the Royal Institute of Chartered Surveyors’ chief economist, said: “Bank of England data on mortgage lending recently released for the month of June suggested that the availability of secured finance was only rising in a very modest way and thus not affording much help for the property market. Net lending increased by just over £300m last month which effectively means that lenders are pretty much just lending out their repayments. By contrast in 2008 (when the market had already past its peak) net lending was averaging more than £3bn per month. Moreover, a recent RICS survey suggested that around 10% of housing transactions are breaking down because of problems with obtaining finance.

“Reflecting this, RICS believes that the recent support for prices is to a large extent a sign of a lack of supply of properties. Whether they may be described as reluctant landlords or investors, many homeowners wanting to move are hanging on to their existing homes in the knowledge that servicing costs are low and can be covered by rental income even in an environment in which yields are slipping. This could remain an important crutch for the market in the near term.”