Lenders have launched a flurry of new products for higher Loan to Value (LTV) mortgages in recent weeks, but the picture remains mixed with lending continuing to hold back demand as banks remain fearful of rising unemployment in Northern England and Wales in the face of swingeing public sector cuts.

The LSL Acadametrics index showed monthly house prices increasing by 0.3% in February, although annual prices have fallen by 0.5% against the surge in interest before the Stamp Duty holiday ended in December 2009.

The number of property transactions in February increased by 2.4% to 41,200 – but this is still only 61% of the long term average, said the property group.

Richard Sexton, business development director of e.surv said: “The fact prices are rising shows there is plenty of pent-up demand in the market. Currently, a large proportion of buyers are those able to muster sizeable deposits, but if the economic horizon clears and the barrier of tight lending criteria is lifted, we could see both demand and prices pick up relatively quickly.”

Strong demand in London and the South East have characterised the first quarter, and there are also encouraging signs from the mortgage industry which could bring about a more widespread and sizeable recovery, said Sexton.

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But he cautioned that as the big price gains seen at the beginning of 2010 fall away, annual growth has slipped into negative territory and until mortgage lending gathers pace, the downward trend will continue.

However, across the UK, seven regions are now experiencing negative growth in house prices, but with the exception of the North, this outlook is expected to improve, when the relatively large fall in prices in March of 2010 drops out from the annual statistics.

Sexton said: “There is little to suggest that the generalised downward pressure will continue.”