Property market 'has stalled

House prices fell again in September and the annual rate of growth dropped to its lowest level in more than nine years, Nationwide building society said today.

The society said that for the second month running prices had fallen by 0.2%, bringing the annual rate of price inflation down to 1.8%.

"Since the end of 2004 the monthly data has been relatively mixed, with several months of small falls and rises, but looking at changes over three months shows the underlying trend more clearly," said Nationwide's group economist, Fionnuala Earley.

"According to this measure, house price growth stalled in the three months to September, with no increase on the previous three months. Yet house prices are still higher than at this time last year.

The average price of a house in the UK now stands at £156,517 compared to £153,727 at this time last year. However prices rose by just £134 in the third quarter of this year.

Ms Earley said the house price to earnings ratio being significantly higher than those in the early 1990s were fuelling talk of a housing market bubble, but suggested ratios should be interpreted differently than in the past. She said low inflation was keeping borrowing costs down, while a lack of supply propped up demand for properties.

"This may help to explain why we have seen a surprisingly swift return of buyers to the market. The number of house purchase approvals increased to 97,000 in July, their highest level for a year and just above the average for the last 12 years.

"We expect house purchase approvals to remain at around this trend level for the rest of the year, as declining rates of growth of house prices help add liquidity to the market.

"Estate agents have consistently reported increased buyer interest over the last few months, which should help to support the market going forward."

Howard Archer, chief UK economist at consultancy Global Insight, agreed that house prices are unlikely to fall sharply in the coming months, and predicted an extended period of flat prices.

"We remain sceptical that housing market activity is about to pick up markedly, or that house prices are set to see sustained significant rises any time soon, given that most affordability ratios are still stretched and will only improve gradually over the coming months," he said.

Buyers are also stretching themselves to afford their monthly mortgage repayments in some areas of the country, according to a separate survey published today by the Woolwich.

It showed that in some property hotspots homeowners are spending up to a third of their take-home pay on mortgage repayments.

The problem is worst in London and the south-east, where young professionals are borrowing as much as they can to get on to the property ladder in up and coming neighbourhoods.

Across the whole of England and Wales, mortgage repayments account for an average of 18.7% of take-home pay, but in Hackney south and Shoreditch in east London, mortgage repayments account for nearly 33% of homeowners' take-home pay.

Oxford east has the highest level of repayments outside London at 24% of pay, followed by Birmingham Sparkbrook and Small Heath at 23.4% and Birmingham Ladywood at 22.8%.

Newcastle-under-Lyme in Staffordshire is the most affordable area, with mortgage repayments accounting for just 12% of take-home pay, followed by Stoke-on-Trent South at 12.4% and Staffordshire Moorlands at 12.8%.