House prices have seen a 0.2% increase in July, reversing June?s fall, according to the Nationwide. Although the overall picture remains one of a gently softening market, Nationwide claims that housing market activity is showing some signs of recovery.

The number of house purchase approvals has been steadily increasing, despite being lower than last year and estate agents have reported increased buyer activity. Fionnuala Earley, Group Economist for Nationwide said: ?This could be the start of some unwinding of the stalemate between buyers and sellers and see the return of some liquidity to the market?. Prices were up by 8% in the Cotswolds and 10% in the Highlands.

Despite this, the annual rate of house price inflation is at an eight-year low: ?The annual rate of house price inflation fell to 2.6% in July ? its lowest rate since May 1996?, said Ms Earley, ?This compares with a rate of 4.1% last month and more than 20% this time last year. The price of a typical house in the UK is now £158,348.?

?In conditions of uncertainty, confidence once again becomes crucial? says Nationwide. Confidence levels have, until now, remained quite robust mainly due to the buoyant labour market, but if confidence wavers, the economy will weaken and there could be sharper, and self-fulfilling impacts across the board the mortgage lender warns.

The July figures also showed that buyers still have enough confidence to invest in second homes. A recent study by the University of Surrey put St Ives beach in Cornwall above Copacabana in Rio. The South West is still the most popular place to have a second home although house prices are not necessarily higher there; location is still all important.