The latest data released from Nationwide has shown that year-on-year, house prices climbed 9%, after an 9.4% gain in the previous month.Robert Gardner, Nationwide's Chief Economist, said:...

The latest data released from Nationwide has shown that year-on-year, house prices climbed 9%, after an 9.4% gain in the previous month.

Robert Gardner, Nationwide's Chief Economist, said:

“The annual pace of house price growth continued to moderate in October, declining to 9% from 9.4% in September, the second consecutive month where annual growth has fallen. This is despite house prices increasing by 0.5% month on month in October.

A variety of indicators suggest that the market has lost momentum. The number of mortgages approved for house purchase in September was almost 20% below the level prevailing at the start of the year. Some forward looking indicators, such as new buyer enquiries, suggest that activity may soften further in the near term, especially in London. However, broader economic indicators remain positive. The labour market has continued to improve, with the unemployment rate falling to 6% in the three months to August and mortgage rates have fallen back towards all-time lows. Indicators of consumer confidence have also remained close to recent highs.

An increasing number of borrowers have been opting for fixed rate mortgage deals in recent times. Data from the Council of Mortgage Lenders suggests that around 90% of new mortgages were contracted on fixed rates in recent months, up from 67% two years ago.

Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly important (95% of new mortgage lending to first time buyers is currently on fixed rates).

Borrowers taking out fixed rate mortgages have benefited from historically low interest rates. For example, the average two year fix (for those with a 25% deposit) is currently 2.46%. While this is a little higher than earlier this year, it is still more than one percentage point below the level prevailing 2012. Moreover, for borrowers with a 10% deposit, the rates available for two year fixes are the lowest on record.

This has helped, in part, to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay.

Despite the high proportion of new mortgage lending on fixed rates, the majority of the stock of outstanding mortgages - around 60% - is on variable interest rates. This is a marked shift from the pre-crisis period where the proportion of mortgages on variable rates was 38%. Moreover, the majority of recent fixes are for relatively short time periods - 62% are for two years and around 30% for five years.

Nevertheless, the housing market should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour market remain in good shape. Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and that they are expected to settle at a level somewhat below the average prevailing before the financial crisis, which should help ensure borrowing costs remain manageable.”

Jonathan Samuels, chief executive of Dragonfly Property Finance, felt that the slowdown in the property market has been tangible in recent months.

"Despite the slight rise in prices during October, the overall trend is one of slowdown. Recent growth rates have been unsustainable but the 'irrational exuberance' in the market appears to have subsided. The new lending rules introduced earlier in the year clearly triggered a slowdown but since then I suspect some good old-fashioned common sense has also played a role.

Despite low mortgage rates and an improving economy, people sense that the market is inflated and are increasingly erring on the side of caution. This is especially the case in the capital where growth rates have been extreme over the past couple of years.

Demand is still there, as are mortgages, but borrowers overall appear more grounded."

Jonathan Hopper, managing director, property search consultancy Garrington, observed that although prices were up again in October, the general consensus is that the market has cooled.

"Mortgage applications are down significantly, London has calmed down after a frenzied buying period earlier in the year, and with more properties being marketed, the issues over constrained supply have eased. The market has become far more price sensitive in recent weeks, and in many parts of the country the negotiating stance being adopted by sellers has softened.

At the same time, buyers are taking their time again, viewing multiple properties, and not feeling pressurised into making a quick and rash decision. The overall picture is that of much more sensible, much more controlled market.

There is no suggestion that panic has set in. Consumer confidence is still high, lenders still have an appetite to lend and any concerns over early interest rate rises have subsided. The fact is, the market was running away from itself earlier in the year, and now it feels like the madness has been reigned in.

We're likely to see much more moderated growth for the rest of the year. Whether this is simply the market taking a breather, or the start of a longer trend, will unfold over the next few months. Historically, as we get closer to Christmas, transaction levels do generally drop off. By January, we'll have a much clearer picture where the market is going next."