House prices rise 0.2% in July

Couple in new house

House prices rose by a modest 0.2% in July, according to Nationwide.

On an annual basis though, house prices are still down 0.4%, with the average house price in the UK standing at £168,731.

In addition, the volume of property sales remains historically low, with only 204,000 housing transactions recorded in the second quarter of 2011, the lowest figure for two years.

Robert Gardner, chief economist at Nationwide, comments that "sluggish" demand for properties, coupled with the "gradual rise" in the number of homes available, is keeping the market stable. "Stability has been the watchword for the UK housing market over the past 12 months," he says.

The spotlight has fallen instead on the rental market as a reason for muted growth in the property market.

The English Housing Survey shows the percentage of homeowners has slipped to 67.4% in 2009/10, the seventh annual slip in a row. Meanwhile, it shows that the proportion of people aged 16 to 24 owning a property has dropped to 14% in 2009/10 - with most young adults choosing to privately rent.

Gardner adds: "While many people in the 16 to 24 age group still aspire to buy a home eventually, renting may also have become the more suitable option in the early stages of a career. People move readily between jobs, increasing the uncertainty about their earnings prospects and where they are going to settle."

Going forward, demand for housing should improve "as the economic outlook brightens, labour market conditions strengthen and housing affordability becomes less stretched", says Gardner. "Time will tell whether a greater preference for renting will remain in evidence or the desire for home-ownership once again asserts itself."

Matt Hutchinson, director of house share website, says property transactions are at "severely low levels" because of the "disconnect between buyers and sellers".

He believes the culture of property rental is creating its own problems. "It puts tremendous strain on the rental market with people delaying buying their first property or making the decision not to buy at all."

He adds: "Levels of new rental stock coming onto the market can't keep pace with the number of people looking and this is pushing rental prices up, with many parts of the UK seeing double-digit rent rises in the past 12 months. If we really are starting to see a shift towards long-term property rental then the issue of sufficient supply will need to be addressed."