House prices increased by 3.2% year-on-year in September, the highest jump in prices in almost two years, Nationwide has revealed.

The building society’s house price index (HPI) found that the average house price in the UK now stands at £266,094, a 0.7% increase from August.

The latest annual figure is the highest that house prices have increased since November 2022, when they jumped by 4.4% annually.

Nationwide said that average prices are now around 2% below the all-time highs recorded in summer 2022.

Chief economist at Nationwide, Robert Gardner, said: "Income growth has continued to outstrip house price growth in recent months while borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters. These trends have helped to improve affordability for prospective buyers and underpinned a modest increase in activity and house prices, though both remain subdued by historic standards."

In terms of regions, Northern Ireland was the best performer in Q3, with prices increasing by 8.6% in this period, with the average price now standing at £196,197.

Scotland (£184,471) and Wales (207,113) saw house prices increase by 4.3% and 2.5% respectively.

Meanwhile, the North West (£215,807) was the best performing region, with house prices increasing by 5% in the year to Q3, with Yorkshire and the Humber (£206,493) witnessing a price jump of 4.3%.

House prices in London also increased by 2% in the year to Q3, with the average house price now standing at £524,685.

East Anglia was the only region to record a drop in annual house prices, falling by 0.8% to £270,906.

Gardner added: "Across England overall, prices were up 1.9% compared with Q3 2023. Northern England (comprising North, North West, Yorkshire & The Humber, East Midlands and West Midlands), continued to outperform southern England, with prices up 3.1% year-on-year.

"Southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 1.3% year-on-year rise. London remained the best performing southern region with annual price growth of 2%."

Head of personal finance at Hargreaves Lansdown, Sarah Coles, concluded: "Buyers were back with a bang, prompting a September surge. This time of year is always fairly busy, but falling mortgage rates and wages outstripping inflation have prompted a burst of enthusiasm which has pushed prices up to within 2% of their pandemic-induced peaks. These aren’t runaway price rises, but they’re firmly positive, which always helps boost buyer sentiment and keep the wheels rolling on the property bandwagon.

"With every month that wages outpace house price growth, it makes it easier for people to borrow what they need. It also opens up more wiggle room in their budgets, easing the pressure and encouraging buyers to consider trading up. Meanwhile, mortgage rates have continued to drift downwards. At the end of June, the average two-year fixed rate was 5.99% and it’s now 5.4%. If you go back a year it was 6.48%, so rates have dropped almost a percentage point."

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