The housing market appeared to shrug off the turmoil in the credit markets during September, with prices rising by 0.7% during the month, figures have shown.

The jump in prices was the highest monthly rise since April this year and helped push average UK property prices up to £184,723, Nationwide Building Society said.

But despite the relatively strong monthly gain, annual house price growth continued its downward trend, falling to 9%, its lowest level for nearly a year and down from 9.6% in July.

The three-month growth rate, which is often seen as a better indicator of the underlying trend in the housing market, also eased to stand at just 1.6% for the three months to the end of September, the smallest gain since July 2006.

Fionnuala Earley, Nationwide's chief economist, said: "Higher wholesale funding costs are now clearly leading to a reassessment of the pricing of credit in the mortgage market.

"As expected, this has not had an immediate impact on house prices, but the longer-term effect will undoubtedly be to take some of the froth out of the market."

She said borrowers who wanted to extend themselves to the limit during the past year have been able to do so relatively cheaply in relation to those who borrowed more conservative sums.

But products that require little or no deposit are now becoming more expensive, reflecting the increased risk involved for the lenders.

At the same time the difference in mortgage rates for people borrowing 95% of their home's value and those borrowing just 75% has widened.

Ms Earley said: "The cooling of activity among stretched borrowers is something that most commentators have predicted for some time, given the affordability pressures that have built up from rising house prices, higher base rates and weak earnings growth."

But Nationwide said the other side to the current turmoil in the financial markets is that most commentators no longer expect interest rates to rise to 6%, with many now expecting them to begin falling early next year.

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