House prices show first annual rise in 19 months

The rise of 0.4 percent in October was smaller than the average 1.2 percent gain of the past five months, but still left prices 2.0 percent higher than the same month a year ago -- the first time since March 2008 that prices have risen on an annual basis.

"A moderation in the rate of house price inflation was to be expected, as the very strong monthly increases seen over the summer months were unlikely to be sustainable," said Nationwide chief economist Martin Gahbauer.

The fact that house prices have rebounded even when the economy has been mired in recession has surprised most economists who forecast prices would continue to slide throughout this year.

House prices have risen 4.6 percent since the start of the year, according to the Nationwide index, after falling almost 16 percent in 2008.

The average price of a British home is now 162,038 pounds, 13.1 percent below the peak scaled in October 2007.

Interest rates have been held at a record low 0.5 percent since March and the Bank of England has pumped 175 billion pounds into the economy by buying assets with newly-created money.

The central bank will decide next week whether the weakness of Britain's economy warrants an expansion of its asset purchase programme. It is not expected to raise rates until the middle of 2010 at the earliest.

Nationwide's Gahbauer said favourable borrowing rates should continue to limit the number of distressed sales but noted that house price rises had run ahead of consumer expectations over the summer.

"This could signal a period of moderation in house price inflation ahead, which is fully consistent with October's less pronounced increase in prices," he said.