House prices rose last month for the first time in 16 months, according to figures from the Nationwide Building Society today.

The price of a typical house increased by 0.9 per cent to £150,946 in March in contrast to February when month-on-month house prices fell by 1.9 per cent.

The unexpected rally lowers the annualised rate of house price declines from 17.6 per cent to 15.7 per cent.

Signs that buyers are returning to the housing market was underlined today by a survey by the Bank of England on credit conditions in the UK which revealed that banks expect to increase lending to individuals and businesses over the next three months.

Nationwide welcomed the tentative sign of stability, but added, "It is far too soon to see this as evidence that the trough of the market has been reached."

Howard Archer, chief UK and European economist at IHS Global Insight, agreed that while it is important not to read too much into the surprise rise, he said "there are increasing signs that the housing market may have passed its worst point, helped by the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates."

House prices have fallen every month since October 2007, with the typical home plunging in value from a peak of £186,044 to £147,746 by February 2009.

The dramatic cuts in base rate of the past few months would take time to work through into the housing market, Nationwide said. "It is too early to talk of a house price recovery."

The news of at least a temporary respite to the slump in property values follows other signs of stability. Mortgage approvals have picked up, albeit from low levels. In February they increased by 19 per cent to 37,900 - the highest level in nine months.

Nationwide said: "The upturn is welcome and is certainly a signal that there is some movement in the market. It is more likely to reflect the return of buyers who have delayed purchasing through the worst of the financial turbulence at the end of 2008 rather than the beginnings of a swift recovery."

House price stability is regarded as one of the conditions necessary for a wider economic recovery. Consumer confidence and spending tends to dive when home values, most people's biggest asset, are shrinking.

The news on house prices is the second encouraging sign in two days. Yesterday the COPS/Markit purchasing managers index — a key barometer of manufacturing activity — climbed sharply, albeit from low levels.

The Nationwide's monthly rise was "seasonally adjusted", showing an underlying pick-up even after adjusting for the normal bounce in activity at this time of year.

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