The latest figures from British Bankers’ Association (BBA) and Nationwide reveal
significant growth in house prices and mortgage approvals.

The BBA statistics revealed that mortgage approvals for house purchases rose to a 17-month high in July, as banks started to lend more. There were 38,181 loans approved in July, compared to 35,564 in June. That represents a rise of 76.7% compared to June 2008.

Nationwide’s House Price Index showed that property values rose for the fourth consecutive month in August, with the average price increasing by 1.6% from £158,871 to £160,224.

The three-month-on-three-month comparison of property prices rose 3.3%, the biggest jump since February 2007, while the year-on-year decline in house prices also slowed from 6.2% to 2.7% in August.

However, Martin Gahbauer, chief economist at Nationwide, warned that strong house price increases would become difficult to sustain when interest rates rise.

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He said: “The fall in interest rates has led to a rise in buyer enquiries, but rates will soon increase which will dampen this buyer interest. The eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpy.”

Ray Boulger, senior technical manager at John Charcol, said rising unemployment, a lack of mortgage finance and tight credit conditions would hinder a recovery.

He commented: “Although house prices may continue to rise for the rest of the year, securing a new mortgage is still extremely difficult. Lenders need to re-enter the market and improve LTVs for a sustained revival to occur in 2010.”

Analyst Capital Economics echoed the negative sentiment, warning that renewed  eakness in the housing market was on its way, as shown by falling clearing prices at auctions.