House prices recorded a gain of 0.7% between August and September, according to the latest figures from Nationwide, bringing the average price to £184,723. Despite this rise, the year-on-year rate did slow slightly from 9.6% to 9.0%, admittedly against figures which were particularly, and unusually, strong in 2006.

Meanwhile the 3-month on 3-month rate of price growth slowed from 2% to 1.6%, the lowest level since last July, the lender said. ‘The financial turmoil that began in early August extended into September, dampening hopes that the uncertainty sparked by the crisis would blow over quickly,’ says the report.

‘Higher wholesale funding costs are now clearly leading to a reassessment of the pricing of credit in the mortgage market. As expected, this has not had an immediate impact on house prices, but the longer-term effect will undoubtedly be to take some of the froth out of the market.’

Nationwide says that would-be borrowers should now be prepared to be offered considerably less than lenders were previously offering, but those with mortgages are less likely to have to put up with further interest rate rises; indeed there could even be a cut in interest rates before the end of the year.

Going into 2008 and further ahead, the development of the wider economy and labour market will determine the trajectory of house prices, the report predicts, with a crash still extremely unlikely.