House prices continued to rise in August as a shortage of available homes boosted the market, figures showed.

The Nationwide said the average cost of a home in the UK jumped by 1.6% during the month - the fourth rise in a row and the biggest increase since December 2006.

Also continuing to ease during August was the annual rate at which prices are falling - dropping to 2.7% from 6.2% in July.

With an average of £160,224, the group said prices were now 3.2% higher than at the beginning of 2009. But, it added prices were still 14.4% below their October 2007 peak.

Martin Gahbauer, Nationwide's chief economist, said: "The exceptionally low level of interest rates offers some explanation for why house prices have not repeated the very sharp falls of 2008."

He said low interest rates had fed through into lower mortgage repayments for existing homeowners, making it easier for people who lost their jobs to continue to afford their home loan.

As a result fewer people have been forced to sell their home as is normally the case during a recession, and this has contributed to shifting the balance of supply and demand in favour of sellers during 2009.

Low interest rates have also helped make property more affordable for first-time buyers, boosting demand, despite the ongoing problems in the mortgage market.

But Mr Gahbauer warned that when interest rates did start to rise again it could make the recovery in the housing market "bumpier" than might be expected following the recent run of price rises.

The latest figures on the property market come just days after the British Bankers' Association said the number of mortgages approved for house purchase had risen to a 17-month high during July.

The Council of Mortgage Lenders also reported a 26% rise in mortgage lending in July to its highest level for nine months, as buyers continued to return to the market.

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