Knight Frank’s country house index has registered a 1% increase in prices for the first time since autumn 2007.

The increase was greatest in the Home Counties, where prices have now increased for the second quarter running and are standing at 2.1%. However, on an annual basis average prices have fallen by 13.4% from September 2008 to September 2009.

Andrew Shirley, Knight Frank’s head of rural property research says: ‘The positive sentiment that we saw in the Home Counties market last quarter has now started to spread across the UK. According to the Knight Frank Prime Country House Index, the average price of quality houses in the countryside increased by 0.8% in the third quarter of 2009, compared with a decline of  0.9% in the second three months of the year.

‘Many of those who have been looking to move for the past 12 months are now back in the market as the immediate impact of the credit crunch starts to fade – people, for whatever, reason, need to get on with their lives and cannot delay indefinitely. We are also seeing a large number of clients who are currently renting looking to buy again. Having sold at or near the peak of the market they were hoping the interest from their sales would cover the rent. Miserly bank rates, however, mean some are being forced to eat into their capital, eroding their future purchasing power.

‘As long as this imbalance remains I believe that prices will continue to remain steady or gradually strengthen further. The big question now is how much pent-up demand from frustrated potential buyers remains in the system to maintain the momentum. An increase in interest rates or availability next year could dampen the recovery “

Rupert Sweeting, Knight Frank’s head of country department adds: ‘To my mind the rest of 2009 looks like an ideal window for potential vendors. Demand remains strong and the market is slowly being starved of quality stock. For those with sensible deposits, interest rates are set to remain extremely attractive. We are seeing more and more instances of competitive bidding and it is now no longer a rarity for a  property to sell for over  its guide price.

‘The picture for 2010 is less clear and the prospect of a spring General Election, with the uncertainty that a likely change in political emphasis always engenders, only muddies the waters.”

Prime country property performance by sector

Property Type    Quarter 3 price change %    Annual price change %    Average value
Cottage              0.7                                 -12.0                          £440,000
Farmhouse          1.4                                  -10.9                          £1.1m
Manor House        0.3                                  -17.2                         £2.5m
Unweighted average    0.8                           -13.4                           £1.3m