LONDON (SHARECAST) - House prices are set to remain flat or see a modest decline over the next year, according to the Nationwide building society.
Its House Price Index showed the price of a 'typical' UK house declined by 0.4% month-on-month in September.
This was worse than expected, with economists forecasting prices to remain flat compared to August.
Prices were 1.4% lower than a year ago, putting the price of a 'typical' home at £163,964.
The building society said the annual figure was a better guide as the monthly price changes had been impacted by a number of one-off factors this year, such as the end of the stamp duty holiday.
As ever, the overall figure masked deep regional variations.
Belfast saw prices drop 14% compared to the year before, Manchester homes were down 11%, while in Bradford prices fell 9%.
Robert Gardner, Nationwide's Chief Economist, said a number of factors would lead to house prices remaining relatively flat or declining only modestly over the next year.
"Policy measures such as the Bank of England’s Funding for Lending Scheme should provide support for activity in the housing market by ensuring the availability of credit and lowering its cost," he said.
“However, labour market developments will remain of paramount importance in deciding the trajectory of house prices.
"There are grounds for caution on this front, as the unusual combination of rising employment and declining economic activity that was evident in the first half of 2012 is unlikely to be sustained."
However, he noted recent business surveys had pointed to a gradual expansion in business activity ahead, while signs that European policymakers were prepared to take more aggressive measures to deal with the crisis in the single currency area was also good news for UK prospects.
UK house prices peaked at £186,044 in October 2007, according to the Nationwide, meaning they are currently around 11% below that peak.
The data follow the Bank of England figures showing mortgage approvals remained weak in August, edging up to 47,665 in August from 47,556 in July.
This puts mortgage lending well below the long-term average of around 86,000 a month.
Dr Howard Archer, Chief UK Economist at IHS, said he expected house prices to drift down by around 3% from current levels in the face of limited market activity, still low and fragile consumer confidence, and muted earnings growth.
"Furthermore, the housing supply-demand balance currently seems to be in favour of sellers overall," he added.