The increase pushed the average house price from £162,103 in December to £163,481. The rise also pushed annual house price growth up to 8.6%, compared with 5.9% in December.

The three month on three month rate of change dipped slightly from 2.3% in December to 2.1% in January, although that primarily reflected the smaller price increases recorded in November and December.

The building society said that unless there was a fall in property values during February, annual house price inflation was likely to move into double digits next month for the first time since May 2007. Year-on-year prices would move above 10% in February, Nationwide added.

Martin Gahbauer, chief economist at Nationwide, said last year earnings growth fell to its lowest level on record and this could have a knock-on effect on prices.

He added: “The aggressive cuts in pay inflation have both upside and downside implications for house prices. With pay inflation near zero or even negative, every additional increase in house prices worsens housing affordability, particularly since interest rates are very unlikely to fall any further.

Sponsored

Are your clients ready for the first Making Tax Digital reporting deadline?

Sponsored by BM Solutions

“All else being equal, this limits the upside potential for the current recovery in house prices. On the other hand, pay restraint has allowed more people to stay in work and continue to service their mortgages at the current low rates of interest.”

He added that the surprise leap in inflation in December meant higher interest rates may be required sooner than is widely assumed.