House prices rose by a modest 0.1% in September, according to Nationwide, against a backdrop of double-digit declines in the stockmarkets.
Figures from the lender put the average house price at £166,256. Despite the small monthly rise, property prices are still down year-on-year by 0.3%.
Robert Gardner, chief economist at Nationwide, cites sluggish demand for homes, high unemployment and a lack of available properties as reasons for the muted rise in prices.
"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," he says.
The double-digit falls in developed world equity markets have driven investors towards safe haven assets, such as UK, US and German government bonds, according to Gardner. He adds that continued market volatility could dent investor sentiment in the property market, adding further downward pressure on house prices.
Reasons to be cheerful
However, there are reasons to be upbeat. "The decline in long-term interest rates should continue to provide support for housing demand. Mortgage interest rates have continued to decline in recent months, including for borrowers with smaller deposits," Gardner says.
Nicholas Ayre, director of property buying agency Home Fusion, says on an annual basis, prices are "essentially stagnant".
He adds: "Given the truly dire economic backdrop, both domestic and global, it's a surprise that house prices overall are proving so resilient. Things could potentially be a lot worse than they are.
"While the demand for property is understandably weak, low supply and low interest rates are acting as a glass floor under prices," he says. "If unemployment continues to rise, then we could see more properties come onto the market as people are forced to sell. This could provide further downward pressure on prices."
Meanwhile, mortgage approvals rose to their highest levels for 20 months, according to figures from the Bank of England. In August, 52,410 mortgages were approved, an increase of 3,000 from July.
Brian Murphy, head of lending at mortgage broker Mortgage Advice Bureau, says the increase in mortgage approvals is "a step in the right direction."
"It reflects both the increased availability of mortgages at higher loan-to-values and the competitiveness of many products now in the market," he says.
Going forward, Nationwide"s Gardner expects house prices to "move sideways or to drift modestly lower" into 2012, providing the UK economic recovery improves.
This article was written for our sister website Money Observer