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Annual UK-wide house price inflation is still running at nine per cent but that figure is down 0.4 per cent and shows the market has lost momentum according to the Nationwide.

Average prices actually rose 0.5 per cent through October according to the building society but the underlying trend is for a softening in prices and activity.

A variety of indicators suggest that the market has lost momentum. The number of mortgages approved for house purchase in September was almost 20 per cent 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 warns Nationwide's chief economist, Robert Gardner.

The society warns that the majority of mortgages held on residential properties - around 60 per cent - is now on variable interest rates. This is a marked shift from the pre-crisis period where the proportion of mortgages on variable rates was 38 per cent.

And even those mortgages which are fixed are, in many cases, fixed only for relatively short time periods - 62 per cent are for two years and around 30 per cent for five years.

This means the market may be susceptible to interest rate rises, when they come, and this may in turn act as a deterrent to house moving for existing owners or the decisions of first time buyers to commit to purchase.

Nevertheless, the 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 suggests Gardner.

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, he says.

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