After three months of broadly flat growth, house prices increased by 0.8% in July, Nationwide announced today.

Annual house price growth is now 5.9%, more than double the rate of growth seen this time last year when prices were increasing at an annual rate of only 2.6%.

However, the strong rate of annual house price growth reflects the weak patch in prices this time last year. The three monthly rate of growth has picked up slightly compared with last month, but remains on a fairly benign trend. The price of a typical house in the UK is now £167,733, which is £9,385 more than at the same time last year.

"Indicators of market activity suggest that housing market demand remains fairly buoyant," said the group’s economist Fionnuala Earley.

This will help to support prices, at least in the short term, Ms Earley pointed out. House purchase approvals picked up surprisingly strongly to 120,000 in June to equal the peak at the turn of the year. Indicators of demand early in the house purchase process have also been fairly positive. Estate agents’ stock to sales ratio is a good indicator of changes in the balance of supply and demand in the market and of the direction of house price movements a few months later. The stock to sales ratio has been climbing since the summer of last year. However, the ratio has been broadly stable for the last three months, which may suggest some softening in price increases in the latter part of the year.

With house prices continuing to rise, Ms Earley said that the problem of affordability "had not bitten as sharply as we had expected."

This suggested that "buyers are still able to overcome traditional lending constraints", she said. This may be as a result of looser constraints on mortgage lending, or financial assistance from parents to help their children buy properties.

Owner-occupation is not the only source of demand for housing. Houses and flats transfer easily between the rental and owner-occupied sectors, so the reduction in demand from owner-occupiers may have been replaced by landlords increasing their demand for house purchase to respond to increased tenant demand. The improved quality of rental property has made these choices more attractive than in the past.