Average house prices fell by 0.2% last month after an identical drop was recorded in December. The fall leaves the average UK house valued at £162,228. Year-on-year, property prices were up a very modest 0.6% in January.

On a quarterly basis, a measure many analyst consider to be a more accurate barometer of market direction, prices were up by 0.3% last month.

Nationwide said it expected prices to “move sideways or only modestly lower in the months ahead”. It cited concerns about the labour market and the general state of the economy as two factors that are likely to hold prices back over the next 12 months. It also said that affordability and access to mortgage funding is still a major problem for first-time buyers.

Despite the fact that mortgages are cheaper now than they have been for almost 10 years, potential borrowers need to raise a substantial deposit before they can secure the loan they need to buy a home. The average median deposit required by a first-time rocketed from 10% before the beginning of the credit crunch to 25% afterwards. Although the average deposit required has fallen back to around 20%, this still means a first-time buyer would need to raise more than £30,000 to buy a typical British home.

Finding a deposit is unlikely to become any easier in the year ahead if household budgets come under increasing pressure and unemployment continues to rise.

Robert Gardner, Nationwide’s chief economist, said: “Given the challenging conditions prevailing in late 2011, with the UK economy contracting in the final three months of the year, it’s not surprising that house price growth softened at the start of 2012. The price of a typical house fell by 0.2% in January, taking the annual rate of house inflation down to 0.6% from 1% in December.

“The demand/supply balance may move further in favour of buyers in the months ahead. The economy is not expected to gather much momentum until the second half of 2012 at the earliest, which suggests that labour market conditions and buyer sentiment may be slow to improve.”

A separate report from the Land Registry showed that prices actually dropped by 1.3% in 2011. Prices fell in every region except for London where the average property rose in value by 2.8% to £345,000. Prices in the north-east plummeted by 7.1% to £99,464, the lowest level in eight years, making it the only region in the UK where average prices are now below the £100,000 mark. In contrast, the average price of a property in Kensington and Chelsea rose by 7.2% to £967,951 last year.

Research from the building society found homeownership was more than £100 a month cheaper than being a tenant in December 2011. The average cost of buying a three-bedroom house in the UK cost £600 last month; some £116 (or 16%) lower than the average monthly rent of £716 paid on the same property type, according to the Halifax report. Three years ago, the average cost of buying was 29% higher than renting.

In December 2008, a three-bedroom property would have cost the average homeowner £928 a month in mortgage payments, while a tenant would have needed to find just £721 to cover rent on a property of a similar size.

The remarkable turnaround has been driven by a sharp fall in the cost of mortgage payments and soaring rents in the private sector. The monthly cost of buying a home has fallen by more than a quarter since 2008. New mortgage borrowers were paying an average rate of interest of 5.75% in 2008, compared to 3.63% last year. At the same time, banks have tightened their lending criteria and asked for larger deposits from first-time buyers, locking many tenants out of homeownership.

The cost of renting has meanwhile risen by 9% since 2009, according to the Halifax. Private rents rose by 4% last year alone, according to data from LSL Property Services, as tenants struggled to secure the funding necessary to get a foot on the housing ladder.

Buying was found to be cheaper than renting in every region of the UK except for Wales, where being a tenant would have saved you £5 a month over owning your own home last month. Buying was found to be most cost effective compared to renting in London. The average homeowner in the capital spent £1,089 a month in December, compared to the £1,212 spent on a property of the same size by private tenants.

Martin Ellis, housing economist at Halifax, commented: “The affordability gains for buyers relative to renters in the last three years have been significant. The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation.”

“Nonetheless, despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand.”

A separate study published last week by  Santander Mortgages found that 53% of those planning to buy a home were more positive about their prospects of being able to do so than a year ago, compared to only 15% who were more negative. Twenty-two percent of those who said they would be unlikely to be able to buy a home in the coming 12 months blamed being unable to raise enough money for a deposit.

Phil Cliff, director of Santander Mortgages, said: “Given the tough economic climate people are becoming more upbeat about their prospects of purchasing a new home this year.

“It’s been a tough few years for the property market overall, but prices have made a steady recovery so there’s every reason to feel cautiously optimistic.”

“There are however still a number of obstacles out there facing potential buyers, including securing the required funds, which is why the need to look around for the best deals and get some sound advice in terms of properties and mortgages is now greater than ever.”

The county’s largest supplier of residential valuation services said its data suggests lenders are focussing on wealthier buyers. High-income individuals with large deposits accounted for almost all mortgage approvals last month. Those with only a 10% deposit or less accounted for just 1% of all loans. Almost a quarter of all mortgages written in 2007 were taken out by buyers with a deposit of 15% or less.

The e.surv analysis demonstrates how banks are targeting low loan-to-value borrowers amid concerns about the general state of the economy and the threat posed by the eurozone debt crisis, rising inflation and the deteriorating jobs market.

The average deposit required to secure a mortgage stood at 40% last month, as many poorer borrowers failed to meet the strict lending criteria imposed by banks that are willing to lend to those with smaller deposits.

Purchase approvals for the cheapest properties, those valued at £250,000 or under, fell from 36,187 in September to 35,772 in October. The number of loans for properties costing over £375,000 remained stable.

Overall, purchase approvals fell by 1.1% from 50,967 in September to 50,382 in October. The number of new loans written was up 6.7% year-on-year, but this was from a very low starting point.

Richard Sexton, director of e.surv, said, “Lenders are in no position to begin growing their loan books in the current climate, although noises coming from some sections of the market would have you believe otherwise.

“Banks are becoming more cautious, they are now focusing on wealthier borrowers. It looks like they are still pushing low deposit mortgages out, but the truth is the criteria are so strict, most first-time buyers aren’t eligible. These tightening credit conditions are threatening to widen the vacuum at the bottom of the market.”

“That vacuum is being filled by wealthier buyers and buy-to-let investors, who are propping up the figures. They are being seduced by excellent value fixed-rate mortgages and high rental yields. Lenders are now falling over themselves trying to offer the lowest fixed-rate deals, which are great news for borrowers who can build the deposit required to access these great rates.”

Demand from those unable to secure funding to buy their own home or unwilling to make the financial commitment in the current economic circumstances will push average rent prices up by 20.5% by the end of 2016.

By this time, one in five households will be renting from a private landlord, compared with 15% today and 7.5% in the late 1980s.

House price growth is forecast to total just 6% over the next five years, meaning the value of the country’s housing stock will fall in real terms once the effects of inflation have been stripped out. This will equate to an 11% fall in prices, taking property values back to their 2002 levels.

The average house will be worth £170,000 in 2016, compared to £161,000 today, and £184,000 in 2007. London and southern markets will fare better than the rest of the country, according to Savills.

House prices in the north-east are likely to continue to fall until at least 2015, and may fall to levels seen 20 years ago. Prices in London and the south-east could rise by as much as 22.7% and 21.3% respectively by the end of 2015.

Yolande Barnes, director of Savills residential research “We have long been advocates of residential property investment in the private rented sector. Until recently this has primarily been predicated on the expectation of increased capital value, but there is now a strong case on the basis of income.

“A strong investment case can also be made in terms of the rapidly rising demand for private rented accommodation, a situation that is unlikely to change for as long as mortgage finance remains scarce and first time buyer deposits are unaffordable. And although rents have risen sharply this year, the inbuilt supply shortage means that we see nothing overheated about this market.”

“The biggest challenge now is how to deliver much needed supply into the private rentals market.”

A report published by the homeless charity Shelter last month found that private rents have become unaffordable in 55% of local authority areas in England and that 38% of families with children who rent privately have cut back on food to pay their rent.

Matt Griffiths, a spokesperson for the pressure group Priced Out, told the Guardian: “The rise in renting is overwhelmingly in younger households but also among couples and families in their 30s and 40s. Issues like security of tenure and sharply rising prices matter a great deal for young families, but the emphasis of government is on the rights of landlords and the free movement of investment capital.”

A total of 9,200 properties were repossessed in the three months to the end of September, up from 9,100 in the second quarter of the year. Some 27,500 homes have been taken into possession so far this year, 4% fewer than in the same period last year, prompting lenders to cut their repossession forecasts for 2011.

The CML said low interest rates and lenders’ forbearance had helped keep people in their homes despite the bleak economic backdrop.

There was a slight fall in the number of households behind with their mortgage payments in the third quarter. The number of mortgages with arrears of 2.5% or more of the outstanding balance fell to 161,600 in the three months to the end of September, down from 165,200 in the previous quarter, and 175,100 one year ago.

Despite these encouraging signs, more than 27,300 loans have arrears of more than 10% of their outstanding balance. The CML predicted that falling real incomes, inflation and increasing unemployment could push arrears up in the coming months.

Paul Smee, CML director general, said: “The fall in the number of mortgages in arrears, and the stable picture on repossessions, are testament not only to the beneficial effects of low interest rates, but also to effective arrears management, and good communication between lenders, borrowers and debt counselling organisations.

“Against the backdrop of widespread financial uncertainty sweeping both the UK and the wider European economies, it is impossible to be sanguine about the future influences that households may face. But lenders will do their utmost to help borrowers keep their homes, whatever pressures emerge. Anyone worried about their mortgage should seek early advice and talk to their lender: these figures firmly show that repossession does not have to be an inevitable consequence of mortgage arrears.”

The UK’s largest lettings and property services group which operates 1,300 branches across the country, said properties on its books were being let in an average of 12.7 days in the three months to the end of September, down from 13.5 days in the same period of 2010 and half a day less than the previous quarter.

Tenant demand rose by 10.8% year-on-year in the third quarter of 2011, and 11.9% from the previous three months. Viewings increased by 17.8% compared to the three months to the end of June, and 8.2% annually.

In some areas, homes are coming onto the market and being let within hours. Nationally, an average of five tenants are competing for each available property, despite a marginal increase in the number of homes coming onto the market. In the West Midlands this figure rose to 7.3 tenants per home.

The report will be seen as good news for landlords and buy-to-let investors, but serves as further evidence that potential first-time buyers are struggling to secure the funding they need to get a foot on the housing ladder.

Margaret Longden, a director at Countrywide, said: “Since the beginning of the year we have seen a significant increase in tenant demand for private rental property and although there are still some slight fluctuations that can be linked to seasonality, we’ve found that the demand for rental property has remained incredibly high throughout the year.

“We expect this demand to continue over the coming months, not only because many first-time buyers are struggling to save the substantial deposits currently required to purchase property, but also because a lot of people now see renting as a realistic alternative to home ownership, whether it be because they are awaiting further house price falls or because they are attracted to the flexibility that renting can offer.”

Sales and new buyer inquiries were both up last month, with 8% more surveyors reporting a rise in newly agreed sales rather than a fall. Although still at comparatively low levels, the rise represents the best reading since April 2010, according to RICS.

Some RICS members put the improvement in sales down to sellers being more realistic about the price they can achieve and more willing to accept offers. Despite the unexpected rise, RICS warned that the euro zone debt crisis, low wage growth, high unemployment and restricted lending from banks would halt any significant recovery.

Prices continued to drop in October according to the RICS survey, with 24% more surveyors reporting price falls rather than rises. London was the only region recording rising prices last month.

The RICS figures were released after the Halifax reported house prices rose by 1.2% in October.

Ian Perry, a spokesperson for RICS, said: “It is encouraging that activity levels appear to have edged upwards over the past month. Indeed, chartered surveyors are generally upbeat about the near term prospects for transactions.”

“However, with the chaotic events in the euro area threatening to spillover to the UK and banks still imposing tough conditions on loans to first time buyers, any recovery in sales is still likely to be relatively modest. This will inevitably leave many people who would like to own a home unable to access the market.”

Responding to the Halifax numbers, Howard Archer, chief UK economist at IHS Global Insight, said: “We hugely doubt that October’s spike up in house prices heralds the start of a sustainable pick up in house prices. We suspect it will prove to be a temporary spike.”

“House prices can be notoriously volatile on a month to month basis and there are often significant fluctuations around a trend. So October’s jump in prices does little to change our view that house prices are headed down over the coming months and are likely to fall by 5 per cent from current levels by mid-2012.”

The online conveyancing firm commissioned psychologists to interview 200 people who had either bought or sold a house in the last three months. The poll, conducted by PCP Market Research, found that two-thirds of those questioned reported the process had accelerated the ageing process.

One in ten reported hair loss while completing property transactions, while 19% said their sex drive had started to wane when buying or selling a property. Some 14% of those who took part in the study said they suffered shot-term memory loss while waiting to complete.

Overall, the process of moving house aged respondents by 25 months over a 15-week period, according to the data gathered.

For more sensitive souls, buying or selling a home can accelerate the ageing process by nearly four years.

Study leader, psychologist Dr Glenn Wilson comments: “Periods of prolonged stress and anxiety – such as when buying or selling a home – can seriously take their toll on our wellbeing, with depression, weight loss and even premature ageing a likely outcome.”

Moving continues to be one of life’s most stressful experiences, according to the poll. Nearly 40% of respondents said they found the experience more traumatic than family arguments, while 44% said they found job interviews less traumatic than moving. Many reported side-effects including sleeplessness and even physical illness.

Buying or selling a property caused disputes among four in ten couples, making it nearly as divisive as arguments over money and housework.

The main stresses included worries about mortgage approvals (38%) and inefficient or inept lawyers (31%). More than one in ten respondents said their solicitor had ‘messed them around’, while 11% felt the whole legal process took too long.

In-deed co-founder Harry Hill comments: “Conveyancing can be tedious, time-consuming and frustrating, so it’s no surprise that it causes so much stress.”

Standard variable rate mortgages are usually more expensive than fixed-rate loans but have been kept low as they are tied to the Bank of England base rate.

The CML said borrowers are adopting a “wait and see” approach while the base rate remains at its record low of 0.5%. Economists expect the base rate to rise to 0.9% by the end of 2012 and 2% by the end of 2014, according to the CML. Some 85% borrowers who have reverted to variable rates would still be paying less than their original mortgage payment by the end of 2012, and around 58% would still be paying less than their original payment throughout 2014.

The report suggested that equity-rich homeowners could return to the security of fixed-rate products as the prospect of rate rises increases over the medium term.

Paul Smee, CML Director General, said, “Most households appear to be able to absorb anticipated interest rate rises over the next few years without seeing the cost of their monthly mortgage payment rise above its original level. Many households have seen a significant windfall from reverting onto variable rates over the past few years, although this will be less true for those coming off short-term fixed rates in the near future.

The choice of whether or not to fix, and for how long, involves taking a view about the likely direction of future interest rates, along with a personal consideration of how much rate risk is acceptable to a household. Given the economic uncertainty, it is not surprising that for the time being many of those who have reverted onto variable rates and could remortgage are choosing to wait before they decide what to do next.”

Some 52,000 loans totalling £7.9 billion were advanced in August, up from 48,700 in July and from 51,000 in August last year. The increase was largely driven by a 33% year-on-year rise in remortgage activity as homeowners looked to capitalise on record low interest rates.

The number of loans advanced to first-time buyers rose by 5% from last month and by the same amount year-on-year. Home movers took out 33,000 loans worth £5.5 billion in August, an increase of 8% on July and up 1% from August 2010. Lending to both first-time buyers and home movers was at its highest level for 12 months.

There was little evidence that lenders are relaxing their lending criteria in August, with first-time buyers still needing to put down and average deposit of 20% of their property’s value to secure a mortgage. The amount first-time buyers were able to borrow rose slightly to 3.2 times their income, up from 3.17 times in July.

Paul Smee, director general of the CML, said, “Even though it is impossible to ignore the knocks to confidence emanating from the Euro zone, August lending showed welcome signs of life. With those moving house experiencing a record low in the proportion of their income needed to pay their mortgage interest, it is clear that the low rate environment is a benefit to those with mortgages, even against the backdrop of the gloom in the wider economy.”

A separate report from the Royal Institution of Chartered Surveyors (RICS) said fewer homeowners put their properties up for sale in September, with 5% more of its members reporting the property supply fell rather than rose last month.
Michael Newey, RICS housing spokesperson, said, “Falling supply of fresh stock is indicative of general fears overhanging the economy, with many potential sellers preferring to stay put for now. As a result, the UK housing market remains pretty flat with activity level generally subdued.”

Hometrack said prices fell by 0.1% last month and warned of a further fall over the coming months. Hometrack added that the rate of decline is likely to accelerate as supply has grown at double the rate demand in 2011.

The number of new buyers entering the market was down by 2.6% month-on-month in September, while the gap between asking prices and actual sale prices continued to grow.

The number of new properties coming to the market in the nine months to September grew by 22%, while demand increased by just 11%.

A quarter of postcode areas across the country saw prices fall in September, while 8% saw an increase. In August, 28% of postcode districts suffered price falls, while 9% experienced a rise. Prices in London have continued to climb, with an average monthly increase of 0.2% since July last year.

Hometrack said prices fell most dramatically in the second half of 2010, which saw a 0.5% drop, compared with a 0.1% decrease over the last six months.

Richard Donnell, director of research at Hometrack, said: “The September survey shows a clear shift in the balance between supply and demand in the housing market, with the number of people looking to buy falling for the second month in a row.”

“This is in contrast to the first half of the year, when demand had been steadily rising. On the supply side, the number of new properties coming to the market in the nine months up until September grew at twice the rate of demand.”

Prices in England and Wales were 0.3% below their level this time last year, leaving the value of the average property at £166,256, up slightly from £165,914 in August.

The quarterly measure, often considered to be a more accurate indicator of market direction, remained virtually static, down 0.1%.

Robert Gardner, Nationwide’s chief economist, said: “Sluggish demand for homes on the back of weak labour market conditions, combined with only a gradual rise in the supply of available properties, has helped to keep property prices fairly stable since the summer of 2010. We expect this trend to be maintained over the remainder of 2011, although downside risks have increased as UK and global growth prospects have weakened.”

Despite predicting that the market would hold up for the rest of the year, Mr Gardner warned that the global economic backdrop posed a risk the property prices in the medium-term.

Howard Archer from IHS Global Insight said: “The current financial market turmoil and heightened concerns over the domestic and global economies are unlikely to do much for consumer confidence and willingness to commit to buying a house, in the near term at least.

“These factors are expected to outweigh the support to the housing market coming from extended very low interest rates, so we forecast house prices to fall by about 5% from current levels by mid-2012.”

In England, the north-west saw the largest fall in prices over the last year, with prices down by 2.4% compared with Q3 in 2010, while Northern Ireland saw a fall of 9.3%.

Separate data released by the Land Registry on Wednesday showed that average prices fell by 0.3% in August to £162,347, leaving them 2.6% lower than a year ago.

The Land Registry said that prices in London continued to outperform the rest of the country by some margin. Prices in the capital rose by 0.5% in August and are now 2.1% higher than they were a year ago, leaving the average London home valued at £348,686.

Lucy Pendleton, of estate agents James Pendleton, told the BBC: “London, with its unique climate, once again stands out as the most resilient local market in the UK.

“While London prices float upwards due to a shortage of property and strong demand, not least from wealthy foreign buyers attracted by the cheap pound, for the rest of the UK it is not quite so positive.”

The BBA said that people paid more off their unsecured debts than they borrowed last month.

Repayments on credit cards and unsecured loans outstripped new borrowing by £100 million in August, although data did reveal a slight rise in the number of new home loans written.

Mortgage approvals rose from 75,314 in July to 78,288 in August, a 15% rise year-on-year. Gross mortgage lending rose to £8.2 billion last month, 3% higher than August 2010.

The BBA suggested that mortgage activity may have been stimulated by growth in the buy-to-let market and reported that the number of remortgage approvals in August was higher than in July and up 10% year-on-year.

The number of successful mortgage applications hit its highest level for 15 months.

Personal deposits rose by 3.8% over the past year, while unsecured credit overall contracted by 1.2%. Deposits and savings increased by £11 billion in the first eight months of 2011, compared to £18.6 billion in the same period last year.

BBA statistics director, David Dooks said: “The weak economic environment continues to undermine confidence in both household and business sectors, which impacts on borrowing demand.

“The banks’ new mortgage lending has ticked up in the past couple of months with higher buy-to-let demand, and some business sectors are edging towards year-on-year borrowing growth, although the general landscape is one of households not wanting to take on more borrowing and businesses waiting for trading conditions to improve before borrowing to expand or invest. Against this backdrop, paying down existing debt dominates the net lending figures.”

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The renewed net repayment in unsecured consumer credit in August indicates that consumer appetite for taking on new borrowing is very low while there is also a strong desire of many consumers to reduce their debt.

“Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs.”

The move, which could see competition increase in the 90% loan-to-value (LTV) market, means that potential buyers with a 10% deposit can now take out a five-year fixed rate mortgage at 4.99% and a three-year fix at 4.75% for a fee of £995.

The Post Office also announced that it intends to pull out of the buy-to-let market to focus on first-time buyers, movers and remortgages.

Borrowers have benefited from a number of rate cuts in the mortgage market over recent months after forecasts that the Bank of England base rate is likely to remain at 0.5% until 2013.

There has even been speculation that the prospect of cutting rates to 0.25% was raised at the last monthly meeting of the Bank’s Monetary Policy Committee.

Paul Cook, head of mortgages at the Post Office, said: “Many of the five-year fixes that are heavily advertised are only for borrowers with a large deposit, which excludes many first-time buyers or those moving up the property ladder.

“If you only have a 10% deposit, our 4.99% five-year fixed rate offers excellent value, and protects borrowers from any potential bank base rate rises.”

Lending increased by 6% from £12.6 billion in July to £13.4 billion last month. The total amount lent in August was 10.4% up from the £12.1 billion advanced at the same time last year. The figure is the highest for an August, traditionally one of the stronger months for mortgage lending, since 2008 when £19.3 billion was advanced.

CML chief economist Bob Pannell said: “Much of the recent variation in monthly lending figures appears to have reflected seasonal factors, with the underlying picture being one of activity levels that continue to be subdued but broadly stable.

“The August performance more or less offset the weaker than expected July figure. Taking July and August together, lending has shown little change on the same months of 2009 and 2010.”

Some analysts suggested the August rise was mostly down to homeowners taking advantage of low interest rates to remortgage rather than buyers returning to the market and painted a gloomy picture of the housing market’s prospects over the coming months.

Richard Sexton, director of e.surv chartered surveyors, told the Guardian: “The figures are a mirage and don’t reflect the true state of the mortgage market. Vince Cable said yesterday we are in the midst of the economic equivalent of war, and lenders must feel like they are under attack from all fronts.

“They can’t go on the offensive and start lending in greater volumes over the next few months while they are so busy defending against a barrage of weak economic growth and requirements to hold up to 20% capital. And an assault on so-called ‘casino’ banking will further limit the capacity of our major banks to increase their loan books.”

LSL, which owns Your Move and Reeds Rains, said tenants paid 2.1% more on average to rent a property in August than they did in July, and that costs rose quickest in Wales and the south-east.

The rise leaves the average rent £27 higher than in August 2010.

The average rent in London reached a record high of £1,025 last month, 6.6%, or £63 a month higher than this time last year, while prices in the west Midlands and the north-east rose by 6% and 4.3% respectively.

Rents declined by 0.5% in the Yorkshire and the Humber compared to July, the only region to suffer a fall in prices.

David Brown, commercial director of LSL Property Services, said: “We are in the thick of the busiest time of year for the rental market, and red-hot demand for properties is driving rents up at their fastest monthly pace in the last 12 months. Recent graduates moving for their first jobs have further exaggerated the long-term and growing demand from frustrated buyers.”

“In the last two years, average rents have risen by more than £50 a month. With significant improvement in the number of buyers able to secure a mortgage unlikely in the foreseeable future, competition for rental accommodation will not drop and further rent rises remain on the cards.”

Tenant arrears increased for the first time since April in August, with almost 11% of all UK rent unpaid or late by the end of the month. This was up from the 9% of rent that was unpaid or late at the end of July.

Andrew Hagger, from Moneynet.co.uk, told the Mirror: “While rental costs have rocketed, mortgage rates have been falling, so the decision on whether to rent or buy could have changed dramatically as loans become more affordable.”

A lack of mortgage finance and continued uncertainty over the economy helped push transactions to their lowest levels since June 2009, while the average number of properties on surveyor’s books fell back to 67 from 70 in July.

The RICS report also showed that the number of surveyors reporting house price falls increased in August, with 23% more estate agents reporting falls rather rises, up from 22% in July.

RICS asked its members why they thought sales are remaining subdued and prices are falling back. Some 79% cited general economic uncertainty, while 70% thought a felt a lack of mortgage finance was also impacting negatively on transactions.

Another 40% said they thought potential buyers were staying away because they were worried about a possible fall in house prices in the near future.

Alan Collett, RICS housing spokesperson: “For the time being, our indicators suggest that demand for homes remain broadly steady, albeit at relatively low levels, despite the renewed bout of economic gloom.

“However, the risk is that the worsening economic picture will gradually begin to have a more material impact on sentiment and discourage potential house purchasers even where mortgage finance is available.”

The survey also suggests that surveyors have become more pessimistic about future house prices, with a balance of 23% expecting them to fall over the next three months, up from 13% in July.

New buyer enquiries fell back in August as 3% more chartered surveyors reported a decrease rather than an increase.

Every region except London, where the balance of estate agents reporting a rise in prices reached a 15 month high, reported a drop in prices and transactions. The West Midlands and East Anglia saw the most severe declines, with a balance of 63% and 62% respectively reporting falls.

Andrew Perrin, RICS member from Fraser Wood in Walsall, said: “We are still finding that sensibly/correctly priced properties are selling reasonably quickly, especially at the higher end of the market.”

“There would appear to be a shortage within the general area of higher quality housing and prospective purchasers, in most instances, are not requiring mortgage finance. We are still finding that there is a lack of first time buyers and mortgage availability for them.”

The increase, buoyed in part by a 1.6% rise in prices in London, leaves the value of the average UK property at £219,078, some £12,751, or 5.5%, below the peak of £231,828 in February 2008.

Although prices remained 2.2% down year-on-year, LSL estimated that the number of housing transactions would rise by 1.5% to 64,500 in August, a time of year when transactions traditionally fall but a similar figure.

David Newnes, director of LSL Property Services, which owns estate agents Your Move and Reeds Rains, said the index showed that the country’s housing market was moving in the right direction and that the outlook appeared considerably better than forecast earlier in the year.

“Mortgage finance is very cheap at present – it’s just hard to get if you don’t have a hefty deposit. With major lenders like Santander cutting their mortgage rates by 1% this week, buyers who are able to put up at least a quarter of the value of their purchase can pick up bargains. The fact that the properties are so reasonably priced is also helping allay lenders’ fears about borrowers’ ability to pay for their loans,” Mr Newnes commented.

A separate report from the chartered surveyors group e.surv showed that mortgage approvals rose by 4.3% from 49,239 in July to a seasonally adjusted figure of 49,566 in August, the highest year-on-year increase since May 2010.

More than one in ten mortgages went to buyers with a deposit of 15% or less in August, the highest level recorded this year, suggesting that lenders are beginning to relax lending criteria for first-time buyers.

In further evidence that banks are becoming more willing to lend, the number houses worth up to £125,000, typical first-time buyer properties, accounted for 24% of all approved mortgages, the highest level since April of this year.

Richard Sexton, business development director of e.surv commented: “The property market bounced back this summer, with consecutive months of price rises following falls between April and June.

“While some regions have seen prices fall, the rate of fall has shrunk. The housing market across the country is moving in the right direction.”

The lender said the first fall in its index for four months left property prices 2.6% lower than a year ago and that the value of the average home now stood at £161,743.

Martin Ellis, housing economist at Halifax, said he expected prices to remain stable in the short to medium-term and pointed out that the building society’s quarterly index, considered to be a more accurate barometer of market trends, rose by 1% in the three months to the end of August.

“A recent decline in average mortgage rates has further boosted home affordability for those able to raise a deposit to make a new purchase,” Mr Ellis commented.

“Low interest rates are likely to continue to support the market whilst increased uncertainty about the economic outlook and pressures on householders’ finances constrain demand. Overall, we expect broad stability in both prices and activity over the coming months.”

Howard Archer, chief UK and European economist at IHS Global Insight, was less upbeat: “We continue to believe that house prices are likely to fall by around 5% overall from current levels by mid-2012 in the face of persistent troublesome economic fundamentals.

“We suspect that squeezed purchasing power, tightening fiscal policy, a softening labour market and persistent serious concerns over the economic outlook will limit potential buyers and weigh down on house prices.”

A report from the National Housing Federation (NHF) has forecast that soaring prices, the need for larger deposits and stricter lending criteria from mortgage lenders could see ownership decline to just 63.8% in ten years.

The proportion of people living in owner-occupied accommodation currently stands at 67%, down from 72.5% in 2001.

Federation chief executive David Orr said: “With home ownership in decline, rents rising rapidly and social housing waiting lists at a record high, it’s time to face up to the fact that we have a totally dysfunctional housing market.

“Home ownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy. And for the millions locked out of the property market the options are becoming increasingly limited as demand sends rents rising sharply and social homes waiting lists remain at record levels.”

The number of owner-occupiers in London is expected to fall from 51.6% in 2010 to 44% by 2021.

The NHF, which represents England’s housing associations, predicted steep rises in both house prices and the rental market unless the government takes urgent action to address a “chronic under-supply of homes”.

Average house prices in England will rise by 21.3% over the next five years from £214,647 in 2011 to £260,304 in 2016, while rents in the private sector will increase by 19.8% over the same period, according to Oxford Economics, which carried out the research behind the NHF report.

The study comes at a time when 4.5 million people are on waiting lists for social housing.

Campbell Robb, chief executive of Shelter, told BBC News: “Millions of people across the country remain desperate for an affordable place to live, with more and more forced into expensive and unregulated private rented accommodation.

“With major developers holding planning permission for at least 188,000 new homes, the government must urgently look at ways to get construction going. This will not only create jobs and drive growth but will deliver the homes people desperately need.”