UK house prices fell in September and will at best stagnate over the next year, Nationwide Building Society said.

The average cost of a home dropped 0.4 per cent from August, the Swindon, England-based customer-owned lender said in an e-mailed report today.

From a year earlier, values fell 1.4 per cent to an average £163,964 (€205,284).

The property market remains under pressure as the economy struggles to recover from a recession, undermining consumer confidence, and banks curtail lending to strengthen balance sheets.

The Bank of England will probably maintain the size of its bond-buying plan this week as officials assess the impact of their Funding for Lending Scheme aimed at boosting credit.

"Labour-market developments will remain of paramount importance in deciding the trajectory of house prices," Nationwide chief economist Robert Gardner said.

"There are grounds for caution on this front, as the unusual combination of rising employment and declining economic activity that was evident in the first half of 2012 is unlikely to be sustained."

In the third quarter, house prices fell 0.5 per cent compared with the previous three months, according to a separate Nationwide report.

London remained the UK's most expensive location, with Northern Ireland the cheapest.

Mr Gardner said he expects a gradual economic recovery over the coming 12 months, with national house prices "remaining relatively flat or declining only modestly over the same period."

A report by research company Hometrack yesterday showed house prices fell 0.1 per cent in September, declining for a third month.

The Bank of England said yesterday that mortgage approvals were little changed in August at 47,665, less than half the monthly average of 103,000 in the decade to 2007 before the financial crisis struck.

Bloomberg