House prices rose by 0.8% in August, Nationwide said today, bringing year-on-year growth to its highest level since last April. The report says this means prices have increased by 6.6% over the past year, bringing the average cost of a house to £167,721.

It also predicted that the underlying market will remain firm and that it expected it to be supported by strong demand for properties.
Although Nationwide anticipates a further rise before the end of the year, it said it did not expect the impact on the housing market to be as great as during the last cycle of rises.

Group Economist for the lender, Fionnuala Earley, said: ?The five increases between November 2003 and August 2004 led to a rapid fall in house price inflation, from more than 20% in July 2004 to 2.3% by the time rates were reduced again in August 2005.

?While we expect base rates to reach 5% by the end of the year, above the peak of the last rising cycle, we do not expect the market to slow as sharply as before.
?There are three main reasons for this: first, current macroeconomic conditions suggest fewer increases in base rates; second, fixed mortgage rates have moved more gradually, and third, demand, particularly from the investment sector, is likely to remain fairly supportive.?