House prices rose significantly by 1.2% in June, according to figures released by the Halifax.
The bank said the 0.5% decline in house prices during the last three months was the smallest quarterly fall for a year.
Martin Ellis, the Halifax housing economist, said low interest rates, an increase in the number of people in employment and some tightening in market conditions earlier in the year are likely to have caused the recent rise in prices.
Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earning in mid-2007 to 28% in the last three months. The long-term average over the past 25 years is 37%.
“A slowly improving economy and sustained low interest rates should help to support broad stability over the coming months,” he said.
However Ellis warned that the housing market still faced problems: “The market is, however, likely to continue to face significant headwinds which are expected to constrain housing demand. Low earnings growth, higher taxes and relatively high inflation are all continuing to put pressure on household finances.”
Prices in June were 3.5% lower than a year ago, a rise compared to the 4.2% annual fall recorded in May.
Howard Archer, chief UK economist for Global Insight, has revised his opinion of how much further he expects prices to fall, from 8% to 5% by the middle of 2012. He said: “Despite the surprising spike up in house prices in June reported by the Halifax, we retain the view that modest overall falls in house prices are more likely than not over the second half of 2011 and the first half of 2012.
“On balance, we believe that house prices are likely to fall by around 5% from current levels by mid-2012. However, we have reduced our projected drop in house prices by mid-2012 to 5% from 8%, primarily due to the fact that we now expect interest rates to start rising later and more slowly than we previously projected.
“Specifically, we now expect the Bank of England to hold off from raising interest rates until the second quarter of next year and to only increase them to 1.50% by the end of 2012.”