But on a monthly basis, house prices fell by 0.5% in September. The figures show that there has been a very mixed pattern of monthly price movements so far this year with four monthly rises, four falls and one month when prices were unchanged.
It means that the average UK house price in September was 1% lower than in December 2010 on a seasonally adjusted basis, at £161,132. The Halifax expects the market to remain up and down in the coming months.
On an annual basis, prices in September were 2.3% lower as measured by the average for the three months to September against the same period a year earlier. The annual rate is slightly lower than in August which was -2.6% and continues the improvement seen since May when prices were 4.2% lower annually.
The Halifax says that there are some signs of a slight pick up in housing activity. Property sales have been broadly unchanged during 2011 to date, remaining within a narrow range around 70,000 per month on a seasonally adjusted basis, according to HMRC figures.
The industry wide number of mortgages approved to finance house purchase, a leading indicator of completed house sales, increased for the fourth consecutive month in August, to 52,400 on a seasonally adjusted basis, according to the latest Bank of England figures. This was the highest since December 2009.
Higher employment and low mortgage rates are likely to have been important factors supporting the market. The number of people in employment in the three months to July was 24,000 higher than a year earlier, according to the latest figures from the ONS.
Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 26% in the third quarter of 2011. This is significantly below the average of 37% over the past 25 years and is at its lowest since 1997.
‘The more volatile monthly figures showed a 0.5% decline in prices in September. This continued the mixed monthly picture experienced so far this year with four rises, four falls and one no change since January. This mixed pattern is consistent with a market where prices are lacking genuine direction,’ said Martin Ellis, Halifax housing economist.
‘Greater uncertainty about economic and personal financial circumstances, together with pressure on householders' finances from weak earnings growth, higher inflation and increases in taxes, are likely to be constraining housing demand,’ he explained.
‘Despite these pressures, low interest rates and a rise in employment over the past year, have been supporting the market, resulting in broad stability in both prices and activity. We expect little change over the remainder of this year,’ he added.
David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said that annual and monthly house price falls look like bad news in the short term for homeowners, but there are positive signs looking ahead.
'Mortgage rates have reached record lows and this week Leeds Building Society launched the cheapest ever two year fix at 1.99%. This makes finance affordable for buyers and remortgagers alike not just today, but for years to come,' he explained.
'Even though lenders still have plenty to be nervous about as the economy splutters forward, the unprecedented affordability of finance will give them improved confidence in borrowers’ ability to repay their debts. Nonetheless, being able to save a sizeable deposit remains a barrier for many buyers,' he added.
Although Halifax’s figures point to a rather gloomy outlook for the national housing market in September there are certainly signs of life, according to Peter Rollings, chief executive officer of estate agent Marsh & Parsons.
'Mortgage lending has picked up in recent months and the current price war between lenders is making mortgages increasingly affordable. For those with decent deposits or equity, it’s never been cheaper to borrow and this has prevented more significant price falls in many parts of the UK,' he said.
'In the capital, the housing market is already going from strength to strength as both international and domestic investors look to the continuing safety of London’s bricks and mortar rather than riskier ventures as the stock market turmoil continues. We are yet to really see activity and house price rises ripple out from of the M25 in 2011, but if home loans continue to become cheaper and the number of borrowers able access mortgage finance continues its recent improvement, increasing buyer demand across the country will prevent London’s housing market from pulling away at quite the same pace,' he added.
